Question 1

If firms in a monopolistically competitive market are earning positive profits,then

Accepted Answer

A)   firms will likely be subject to regulation.
B)   barriers to entry will be strengthened.
C)   some firms will exit the market.
D)   new firms will enter the market.E) C) and D)
F) B) and C)

Question 2

A firm has the following cost structure:  If this firm is in a typical perfectly competitive market,in the long run it will likely produce

Accepted Answer

A)   4 or fewer units of output.
B)   5 units of output.
C)   more than 5 units of output.
D)   None of the above are necessarily correct because there is not enough information to tell.E) B) and C)
F) A) and D)

Question 3

Each firm in a monopolistically competitive market

Accepted Answer

A)   earns both short-run and long-run profits.
B)   faces a downward-sloping demand curve.
C)   cannot earn economic profit in the short run.
D)   sets price equal to marginal cost.E) None of the above
F) A) and B)

Question 4

According to the signaling theory of advertising,consumers

Accepted Answer

A)   pay little or no attention to which firms advertise and which firms do not advertise.
B)   are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement.
C)   are often more impressed by low-cost advertisements than they are by high-cost advertisements.
D)   gain little or no information about product quality from advertisements.E) B) and C)
F) A) and D)

Question 5

A monopolistically competitive market is like both a competitive market and a monopoly in that

Accepted Answer

A)   all three market structures feature easy entry by new firms in the long run.
B)   firms in all three market structures maximize profit by producing an output level where marginal revenue equals marginal cost.
C)   firms in all three market structures produce the welfare-maximizing level of output.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 6

Which market structure(s)is(are)considered highly concentrated?

Accepted Answer

The answer of Which market structure(s)is(are)considered highly concentrated?...

Question 7

It has been said that many of the patrons in McDonald's restaurants in foreign locations are American tourists.A likely reason why many Americans dine at McDonald's while vacationing abroad is

Accepted Answer

A)   they can't get enough McDonald's food when they are at home.
B)   they know and trust the quality associated with the McDonald's brand name.
C)   the food at local restaurants is of inferior quality.
D)   that Americans,by their nature,are not very adventurous.E) A) and D)
F) C) and D)

Question 8

According to one theory,advertising sends a signal to consumers about the quality of the product being offered.An implication of this theory is that

Accepted Answer

A)   the actual quality of the product is irrelevant.
B)   the content of the advertisement is irrelevant.
C)   advertising is not in the best interest of society.
D)   it is irrational for firms to pay famous people large amounts of money to appear in their advertisements.E) A) and B)
F) B) and C)

Question 9

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.
 
-Refer to Table 16-1.What is the concentration ratio in Industry W?

Accepted Answer

A)   26%
B)   58%
C)   72%
D)   82%E) A) and D)
F) A) and C)

Question 10

The general term for market structures that fall somewhere between monopoly and perfect competition is

Accepted Answer

A)   incomplete markets.
B)   imperfectly competitive markets.
C)   oligopoly markets.
D)   monopolistically competitive markets.E) None of the above
F) C) and D)

Question 11

Both monopolistic competition and oligopoly are market structures

Accepted Answer

A)   that fail to achieve the total surplus achieved by perfect competition.
B)   that feature only a few firms in each market.
C)   to which the concept of Nash equilibrium is frequently applied by economists.
D)   in which firms earn zero economic profit in the long run.E) B) and D)
F) C) and D)

Question 12

Two bottles of body wash sit side-by-side in a grocery store: Olay (a brand name) sells for $6.00,while Up and Up (not a brand name) sells for $3.00.Even defenders of brand names would have to admit that

Accepted Answer

A)   no rational consumer would spend twice as much for Olay as she would for Up and Up.
B)   the side-by-side presence of these two body washes conveys no useful information to consumers.
C)   Olay has no incentive to maintain the quality of its product just because of the Olay brand name.
D)   None of the above is correct.E) A) and D)
F) None of the above

Question 13

Product differentiation causes the seller of a good to face what type of demand curve?

Accepted Answer

A)   downward sloping
B)   vertical
C)   horizontal
D)   Any of the above could be correct since product differentiation does not affect the shape of the demand curve.E) All of the above
F) A) and D)

Question 14

Table 16-4
This table shows the demand schedule,marginal cost,and average total cost for a monopolistically competitive firm.
 
-Refer to Table 16-4.What price will this firm charge to maximize profit?

Accepted Answer

A)   $6
B)   $7
C)   $8
D)   $9E) A) and C)
F) B) and C)

Question 15

Figure 16-1.The figure is drawn for a monopolistically competitive firm. 
-Refer to Figure 16-1.Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium.You would draw the ATC curve

Accepted Answer

A)   with its minimum at the point (Q = 12,P = $18) .
B)   with its minimum at the point (Q = 12,P = $12) .
C)   tangent to the demand curve at the point (Q = 12,P = $18) .
D)   tangent to the demand curve at the point (Q = 16,P = $16) .E) B) and C)
F) A) and B)

Question 16

A monopolistically competitive firm is currently earning a positive economic profit.If other firms enter the market,we would expect that the added competition will cause this firm to adjust its output such that it

Accepted Answer

A)   will operate closer to its efficient scale.
B)   will operate further from its efficient scale.
C)   will no longer be at its efficient scale.
D)   might move either closer to or further from its efficient scale.E) B) and C)
F) A) and C)

Question 17

Monopolistic competition is characterized by many buyers and sellers,product differentiation,and barriers to entry.

Accepted Answer

A) True 
 B)False

Question 18

A firm is a price taker

Accepted Answer

A)   only when the market is perfectly competitive.
B)   only when the market is perfectly competitive or monopolistic.
C)   only when the market is perfectly competitive or monopolistically competitive.
D)   when the market is perfectly competitive,monopolistically competitive,or monopolistic.E) B) and D)
F) A) and B)

Question 19

Figure 16-8
The figure is drawn for a monopolistically-competitive firm. 
-Refer to Figure 16-8.When the firm is maximizing its profit,the markup over marginal cost amounts to

Accepted Answer

A)   $16.67.
B)   $33.33.
C)   $50.00.
D)   $66.66.E) All of the above
F) C) and D)

Question 20

Refer to Scenario 16-3.What can consumers conclude from Burger Bonanza's willingness to spend $4 million on an advertising campaign?

Accepted Answer

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Exam 16: Monopolistic Competition

Monopolistic competition is characterized by many buyers and sellers,product differentiation,and barriers to entry.

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A firm is a price taker

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Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1.What is the concentration ratio in Industry W?

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Two bottles of body wash sit side-by-side in a grocery store: Olay (a brand name) sells for $6.00,while Up and Up (not a brand name) sells for $3.00.Even defenders of brand names would have to admit that

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Both monopolistic competition and oligopoly are market structures

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It has been said that many of the patrons in McDonald's restaurants in foreign locations are American tourists.A likely reason why many Americans dine at McDonald's while vacationing abroad is

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Refer to Scenario 16-3.What can consumers conclude from Burger Bonanza's willingness to spend $4 million on an advertising campaign?

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Table 16-4 This table shows the demand schedule,marginal cost,and average total cost for a monopolistically competitive firm. -Refer to Table 16-4.What price will this firm charge to maximize profit?

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Product differentiation causes the seller of a good to face what type of demand curve?

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According to one theory,advertising sends a signal to consumers about the quality of the product being offered.An implication of this theory is that

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A firm has the following cost structure: If this firm is in a typical perfectly competitive market,in the long run it will likely produce

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Figure 16-8 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-8.When the firm is maximizing its profit,the markup over marginal cost amounts to

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Which market structure(s)is(are)considered highly concentrated?

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A monopolistically competitive market is like both a competitive market and a monopoly in that

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Each firm in a monopolistically competitive market

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The general term for market structures that fall somewhere between monopoly and perfect competition is

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According to the signaling theory of advertising,consumers

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Figure 16-1.The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-1.Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium.You would draw the ATC curve

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If firms in a monopolistically competitive market are earning positive profits,then

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A monopolistically competitive firm is currently earning a positive economic profit.If other firms enter the market,we would expect that the added competition will cause this firm to adjust its output such that it

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