Question 1

Defenders of advertising

Accepted Answer

A)   concede that advertising increases firms' market power.
B)   concede that advertising makes entry by new firms more difficult.
C)   contend that firms use advertising to provide useful information to consumers.
D)   All of the above are correct.E) All of the above
F) None of the above

Question 2

A new Mexican restaurant opened in the town of Manchester. The residents of the town are

Accepted Answer

A)   happy because of the product-variety externality, while other restaurant owners are unhappy because of the business-stealing externality.
B)   happy because of the business-stealing externality, while other restaurant owners are unhappy because of the product-variety externality.
C)   unhappy because of the product-variety externality, while other restaurant owners are happy because of the business-stealing externality.
D)   unhappy because of the business-stealing externality, while other restaurant owners are happy because of the product-variety externality.E) C) and D)
F) A) and D)

Question 3

Professional organizations and producer groups have an incentive to

Accepted Answer

A)   restrict advertising in order to enhance competition on the basis of price.
B)   restrict advertising in order to reduce competition on the basis of price.
C)   encourage advertising in order to reduce competition on the basis of price.
D)   encourage advertising in order to enhance competition on the basis of price.E) A) and B)
F) B) and C)

Question 4

Assume the role of a critic of advertising. Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.

Accepted Answer

Advertising manipulates people's tastes ...

Question 5

Which of the following is a feature that is shared between perfect competition and monopolistic competition, but not between monopolistic competition and monopoly?

Accepted Answer

A)   rule for maximizing profits
B)   ability to earn profits in the short run
C)   entry in the long run
D)   price exceeds marginal costE) A) and C)
F) None of the above

Question 6

Monopolistic competition and monopoly are examples of a market structure called imperfect competition.

Accepted Answer

A) True 
 B)False

Question 7

In some countries, brand name fast-food restaurants are not allowed to operate. Such restrictions are likely to

Accepted Answer

A)   enhance the social welfare of society.
B)   increase the number of fast-food restaurants.
C)   reduce barriers to entry in imperfect markets.
D)   reduce the competitive nature of local fast-food markets.E) B) and D)
F) B) and C)

Question 8

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 C?

Accepted Answer

A)   13%
B)   32%
C)   52%
D)   84%E) None of the above
F) A) and B)

Question 9

An important difference between the situation faced by a profit-maximizing monopolistically competitive firm in the short run and the situation faced by that same firm in the long run is that in the short run,

Accepted Answer

A)   price may exceed marginal revenue, but in the long run, price equals marginal revenue.
B)   price may exceed marginal cost, but in the long run, price equals marginal cost.
C)   price may exceed average total cost, but in the long run, price equals average total cost.
D)   there are many firms in the market, but in the long run, there are only a few firms in the market.E) A) and B)
F) All of the above

Question 10

The product-variety externality arises in monopolistically competitive markets because

Accepted Answer

A)   firms produce with excess capacity.
B)   firms try to differentiate their products.
C)   firms would like to produce homogeneous products, but the large number of firms prohibits it.
D)   entry and exit is restricted.E) A) and B)
F) All of the above

Question 11

When a firm operates with excess capacity,

Accepted Answer

A)   additional production would lower the average total cost.
B)   additional production would increase the average total cost.
C)   it must be a perfectly competitive firm.
D)   it must be a monopolistically competitive firm.E) C) and D)
F) A) and D)

Question 12

Figure 16-10
The figure is drawn for a monopolistically-competitive firm. 
-Refer to Figure 16-10. In order to maximize its profit, the firm will choose to produce

Accepted Answer

A)   100 units of output.
B)   between 100 and 133.33 units of output.
C)   133.33 units of output.
D)   154.92 units of output.E) A) and B)
F) A) and D)

Question 13

Free entry and exit means that the number of firms in the market adjusts until

Accepted Answer

A)   producers continuously enter the market freely.
B)   the market grows to a profitable level.
C)   economic profits are driven to zero.
D)   products are free.E) A) and C)
F) B) and D)

Question 14

The breakfast cereal industry, with its concentration ratio of 80%, would best be described as a(n)

Accepted Answer

A)   perfectly competitive market.
B)   monopolistically competitive market.
C)   oligopoly.
D)   monopoly.E) A) and B)
F) B) and C)

Question 15

A monopolistically competitive market

Accepted Answer

A)   is imperfectly competitive, and all imperfectly competitive markets are monopolistically competitive.
B)   is imperfectly competitive, but not all imperfectly competitive markets are monopolistically competitive.
C)   is imperfectly competitive, whereas an oligopolistic market is not imperfectly competitive.
D)   is not imperfectly competitive.E) A) and C)
F) A) and D)

Question 16

Some firms have an incentive to advertise because they sell a

Accepted Answer

A)   homogeneous product and charge a price equal to marginal cost.
B)   homogeneous product and charge a price above marginal cost.
C)   differentiated product and charge a price equal to marginal cost.
D)   differentiated product and charge a price above marginal cost.E) A) and C)
F) A) and D)

Question 17

Figure 16-10
The figure is drawn for a monopolistically-competitive firm. 
-Refer to Figure 16-10. Efficient scale is reached

Accepted Answer

A)   at 100 units.
B)   at 133.33 units.
C)   between 133.33 units and 154.92 units.
D)   at 154.92 units.E) None of the above
F) A) and B)

Question 18

In a monopolistically competitive industry, firms set price

Accepted Answer

A)   equal to marginal cost since each firm is a price taker.
B)   below marginal cost since each firm is a price taker.
C)   above marginal cost since each firm is a price setter.
D)   always a fraction of marginal cost since each firm is a price setter.E) None of the above
F) B) and D)

Question 19

The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York. This is an example of a brand name enhancing market efficiency for U.S. tourists visiting the Philippines.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is an example of a monopolistically competitive industry?

Accepted Answer

A)   computer operating systems
B)   tennis balls
C)   movies
D)   cable televisionE) A) and D)
F) B) and C)

Exam 16: Monopolistic Competition

Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. Efficient scale is reached

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Some firms have an incentive to advertise because they sell a

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Which of the following is an example of a monopolistically competitive industry?

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Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. In order to maximize its profit, the firm will choose to produce

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A monopolistically competitive market

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A new Mexican restaurant opened in the town of Manchester. The residents of the town are

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Professional organizations and producer groups have an incentive to

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Monopolistic competition and monopoly are examples of a market structure called imperfect competition.

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An important difference between the situation faced by a profit-maximizing monopolistically competitive firm in the short run and the situation faced by that same firm in the long run is that in the short run,

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In a monopolistically competitive industry, firms set price

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When a firm operates with excess capacity,

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Which of the following is a feature that is shared between perfect competition and monopolistic competition, but not between monopolistic competition and monopoly?

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Assume the role of a critic of advertising. Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.

Correct AnswerverifiedAdvertising manipulates people's tastes ...View AnswerShow Answer

In some countries, brand name fast-food restaurants are not allowed to operate. Such restrictions are likely to

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Defenders of advertising

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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 C?

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The product-variety externality arises in monopolistically competitive markets because

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The breakfast cereal industry, with its concentration ratio of 80%, would best be described as a(n)

Correct AnswerverifiedShow Answer

Free entry and exit means that the number of firms in the market adjusts until

Correct AnswerverifiedShow Answer

The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York. This is an example of a brand name enhancing market efficiency for U.S. tourists visiting the Philippines.

Correct AnswerverifiedShow Answer

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Advertising manipulates people's tastes ...
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