Question 1

Which of the following is most likely sold in a monopolistically competitive market?

Accepted Answer

A)   sports drinks
B)   cable tv programming
C)   a share of McDonald's stock
D)   sunglassesE) None of the above
F) All of the above

Question 2

AllClean knows that it produces and sells very effective laundry detergent.NotQuiteWhite knows that it produces and sells ineffective laundry detergent.According to the signaling theory of advertising,

Accepted Answer

A)   both AllClean and NotQuiteWhite have incentives to spend large amounts of money on advertising their products.
B)   AllClean has an incentive to spend a large amount of money on advertising its detergent,but NotQuiteWhite does not.
C)   NotQuiteWhite has an incentive to spend a large amount of money on advertising its detergent,but AllClean does not.
D)   neither AllClean nor NotQuiteWhite has an incentive to spend a large amount of money on advertising their detergents.E) A) and B)
F) All of the above

Question 3

Monopolistic competition is considered inefficient because

Accepted Answer

A)   price exceeds marginal cost.
B)   output is excessive.
C)   long-run profits are positive.
D)   barriers to entry limit the number of firms in the market.E) C) and D)
F) B) and C)

Question 4

A markup of price over marginal cost is inconsistent with free entry and zero profit.

Accepted Answer

A) True 
 B)False

Question 5

In Lee Benham's 1972 article examining the impact of advertising on the average price paid for a pair of eyeglasses,Benham found that

Accepted Answer

A)   the average price paid for eyeglasses was nearly 20% higher in the states that did not restrict advertising.
B)   the average price paid for eyeglasses was nearly 20% lower in the states that did not restrict advertising.
C)   there was no difference in the average price paid between states that restricted advertising and those that did not.
D)   the average price paid for eyeglasses was almost 5 times higher in the states that did not restrict advertising.E) B) and D)
F) A) and D)

Question 6

Which market structure(s)include(s)many firms with differentiated products who can enter and exit the market freely?

Accepted Answer

monopolist...

Question 7

When a monopolistically competitive firm raises its price,

Accepted Answer

A)   quantity demanded falls to zero.
B)   quantity demanded declines but not to zero.
C)   the market supply curve shifts outward.
D)   quantity demanded remains constant.E) B) and C)
F) A) and D)

Question 8

Joe's Juice Shop operates in a monopolistically competitive market.Joe's is currently producing where its average total cost is minimized.In the long run we would expect Joe's output to

Accepted Answer

A)   decrease and average total cost to increase.
B)   decrease and average total cost to decrease.
C)   remain unchanged as Joe's is doing the best it can.
D)   increase and average total costs to decrease.E) C) and D)
F) A) and B)

Question 9

Which of the following statements is not correct?

Accepted Answer

A)   Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry,whereas monopoly is characterized by barriers to entry.
B)   Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly.
C)   Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market,whereas each seller can affect the actions of other sellers in an oligopoly.
D)   Both monopolistic competition and perfect competition are characterized by product differentiation.E) A) and B)
F) B) and D)

Question 10

The higher the concentration ratio,the

Accepted Answer

A)   more control an individual firm has to set prices.
B)   more competitive the industry.
C)   less competitive the industry.
D)   Both a and c are correct.E) A) and B)
F) B) and C)

Question 11

One key difference between an oligopoly market and a competitive market is that oligopolistic firms

Accepted Answer

A)   are price takers while competitive firms are not.
B)   can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make.
C)   sell completely unrelated products while competitive firms do not.
D)   sell their product at a price equal to marginal cost while competitive firms do not.E) B) and C)
F) A) and C)

Question 12

"In a long-run equilibrium,price is equal to average total cost." This statement applies to

Accepted Answer

A)   competitive markets,but not to monopolistically competitive markets or monopolies.
B)   competitive and monopolistically competitive markets,but not to monopolies.
C)   competitive markets,monopolistically competitive markets,and monopolies.
D)   None of the above is correct.E) C) and D)
F) B) and D)

Question 13

Figure 16-1    
-Refer to Figure 16-1.Which of the following sets of explanations best describes the differences between the graphs above?

Accepted Answer

A)   Panel A: monopolistically competitive firm's demand curvePanel B: monopoly firm's demand curvePanel C: oligopoly firm's demand curvePanel D: perfectly competitive firm's demand curve
B)   Panel A: oligopoly firm's demand curvePanel B: perfectly competitive firm's demand curvePanel C: monopolistically competitive firm's demand curvePanel D: supply curve
C)   Panel A: perfectly competitive firm's demand curvePanel B: monopolistically competitive firm's demand curvePanel C: monopoly firm's demand curvePanel D: supply curve
D)   Panel A: monopolistically competitive firm's demand curvePanel B: monopoly firm's demand curvePanel C: perfectly competitive firm's demand curvePanel D: supply curveE) None of the above
F) A) and B)

Question 14

Which of the following market structures is considered a differentiated products market?

Accepted Answer

A)   Perfect competition
B)   Monopolistic competition
C)   Monopoly
D)   Both a and b are differentiated products markets.E) C) and D)
F) A) and C)

Question 15

The deadweight loss that is associated with a monopolistically competitive market is a result of

Accepted Answer

A)   price falling short of marginal cost in order to increase market share.
B)   price exceeding marginal cost.
C)   the firm operating in a regulated industry.
D)   excessive advertising costs.E) A) and B)
F) None of the above

Question 16

Firm A produces and sells in a market that is characterized by highly differentiated consumer goods.Firm B produces and sells industrial products.Firm C produces and sells an agricultural commodity.Which firm is likely to spend the greatest portion of its total revenue on advertising?

Accepted Answer

A)   firm A
B)   firm B
C)   firm C
D)   There is no reason to believe that any one of the three firms would spend a greater portion of its total revenue on advertising than the other two firms.E) A) and B)
F) A) and C)

Question 17

There is general disagreement among economists about the role of advertising,but there is widespread agreement about the role of brand names on market efficiency.

Accepted Answer

A) True 
 B)False

Question 18

Scenario 16-1
Suppose the following are the sales for all of the firms in two different industries.
 
-Refer to Scenario 16-1.Which of the following statements is correct regarding the competitiveness of these two industries?

Accepted Answer

A)   Industry A and Industry B are equally competitive.
B)   Industry A is more competitive than Industry B.
C)   Industry A is less competitive than Industry B.
D)   The competitiveness of these two industries cannot be determined from the information given.E) None of the above
F) All of the above

Question 19

When the loss from a business-stealing externality exceeds the gain from a product-variety externality,

Accepted Answer

A)   firms are more likely to operate at efficient scale.
B)   there are likely to be too many firms in a monopolistically competitive market.
C)   market efficiency is likely to be enhanced by the entry of new firms.
D)   all firms are earning zero economic profit.E) A) and B)
F) B) and C)

Question 20

Which market structure(s)is(are)imperfectly competitive?

Accepted Answer

oligopoly
...

Exam 16: Monopolistic Competition

Scenario 16-1 Suppose the following are the sales for all of the firms in two different industries. -Refer to Scenario 16-1.Which of the following statements is correct regarding the competitiveness of these two industries?

Correct AnswerverifiedShow Answer

Which of the following market structures is considered a differentiated products market?

Correct AnswerverifiedShow Answer

Which market structure(s)is(are)imperfectly competitive?

Correct Answerverifiedoligopoly...View AnswerShow Answer

"In a long-run equilibrium,price is equal to average total cost." This statement applies to

Correct AnswerverifiedShow Answer

One key difference between an oligopoly market and a competitive market is that oligopolistic firms

Correct AnswerverifiedShow Answer

A markup of price over marginal cost is inconsistent with free entry and zero profit.

Correct AnswerverifiedShow Answer

When a monopolistically competitive firm raises its price,

Correct AnswerverifiedShow Answer

AllClean knows that it produces and sells very effective laundry detergent.NotQuiteWhite knows that it produces and sells ineffective laundry detergent.According to the signaling theory of advertising,

Correct AnswerverifiedShow Answer

The higher the concentration ratio,the

Correct AnswerverifiedShow Answer

Joe's Juice Shop operates in a monopolistically competitive market.Joe's is currently producing where its average total cost is minimized.In the long run we would expect Joe's output to

Correct AnswerverifiedShow Answer

The deadweight loss that is associated with a monopolistically competitive market is a result of

Correct AnswerverifiedShow Answer

When the loss from a business-stealing externality exceeds the gain from a product-variety externality,

Correct AnswerverifiedShow Answer

Which market structure(s)include(s)many firms with differentiated products who can enter and exit the market freely?

Correct Answerverifiedmonopolist...View AnswerShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

There is general disagreement among economists about the role of advertising,but there is widespread agreement about the role of brand names on market efficiency.

Correct AnswerverifiedShow Answer

Figure 16-1 -Refer to Figure 16-1.Which of the following sets of explanations best describes the differences between the graphs above?

Correct AnswerverifiedShow Answer

Firm A produces and sells in a market that is characterized by highly differentiated consumer goods.Firm B produces and sells industrial products.Firm C produces and sells an agricultural commodity.Which firm is likely to spend the greatest portion of its total revenue on advertising?

Correct AnswerverifiedShow Answer

In Lee Benham's 1972 article examining the impact of advertising on the average price paid for a pair of eyeglasses,Benham found that

Correct AnswerverifiedShow Answer

Which of the following is most likely sold in a monopolistically competitive market?

Correct AnswerverifiedShow Answer

Monopolistic competition is considered inefficient because

Correct AnswerverifiedShow Answer

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oligopoly
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monopolist...
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