Question 1

Critics of vacation advertisements that depict 'beautiful' human bodies on sun-drenched beaches as the primary focus of the message are likely to claim that the purpose of the advertisement is to:

Accepted Answer

A)   inflame carnal desire
B)   encourage sunbathing in general
C)   provide helpful information about a tourist destination
D)   manipulate people's tastes through psychological messagesE) All of the above
F) A) and C) D

Question 2

In the short run, a firm in a monopolistically competitive market operates much like a monopolist.

Accepted Answer

A) True 
 B)False

Question 3

In a monopolistically competitive industry, the profit-maximising firm will produce where marginal costs are equal to average total cost.

Accepted Answer

A) True 
 B)False

Question 4

A new brewing company announces that it is releasing a new organic ale into the beer market. You can assume that the market for beer is characterised by monopolistic competition. According to the information provided, beer consumers are likely to experience what kind of externality as a result of the new ale?

Accepted Answer

A)   product-variety
B)   business-stealing
C)   market price
D)   advertisingE) C) and D)
F) None of the above

Question 5

Inefficiency in monopolistically competitive markets can be identified with:

Accepted Answer

A)   their similarities to perfectly competitive markets
B)   not having the 'ideal' number of firms in the industry
C)   a first-best equilibrium, where price is equal to marginal cost
D)   government programs that effectively regulate priceE) None of the above
F) C) and D)

Question 6

Regulation of a firm in a monopolistically competitive market:

Accepted Answer

A)   will lower the firm's cost
B)   is unlikely to improve market efficiency
C)   is commonly used to enhance market efficiency
D)   usually implies a very small administrative burdenE) None of the above
F) All of the above

Question 7

One theory of advertising suggests that:

Accepted Answer

A)   information on price is always a requisite for effective advertising
B)   celebrity advertising is not effective in retail food markets
C)   the content of advertising may be irrelevant to product success in the market
D)   Uncle Toby's and Sanitarium should not advertise new cerealsE) None of the above
F) B) and C)

Question 8

Excess capacity:

Accepted Answer

A)   is a characteristic of rising average total cost curves
B)   is solely a characteristic of mark-up pricing
C)   tells economists little about the desirability of a market outcome
D)   is the primary source of market inefficiency in monopolistically competitive marketsE) All of the above
F) C) and D)

Question 9

Advertising that uses celebrity endorsements is most likely intended to:

Accepted Answer

A)   provide a signal of product quality
B)   be useful only for psychological effects
C)   increase elasticity of demand for the advertised product
D)   reduce the ability of markets to allocate resources efficientlyE) A) and D)
F) A) and B) A

Question 10

An important criticism of advertising is that in some markets it may:

Accepted Answer

A)   expand brand loyalty
B)   attract products of lower quality in the market
C)   increase elasticity of demand
D)   drive market prices downE) B) and D)
F) A) and D)

Question 11

Graph 17-4
 
-Refer to Graph 17-4. Which of the panels shown depicts a firm in a monopolistically competitive market earning economic profits in the short run?

Accepted Answer

A)   both panels c and d
B)   panel d
C)   panel c
D)   none of the aboveE) C) and D)
F) A) and B) C

Question 12

A business-stealing externality is:

Accepted Answer

A)   the act of incumbent firms engaging in hostile takeover of vertically integrated markets
B)   considered to be an explicit cost of business in monopolistically competitive markets
C)   the negative externality associated with entry of new firms in a monopolistically competitive market
D)   likely to be punished under antitrust laws that govern commerceE) C) and D)
F) B) and C)

Question 13

Which two curves are tangent in a monopolistically competitive market with zero economic profit?

Accepted Answer

A)   demand and marginal revenue
B)   demand and total revenue
C)   demand and average total cost
D)   demand and average fixed costE) B) and C)
F) A) and D)

Question 14

In a monopolistically competitive industry, price is:

Accepted Answer

A)   above marginal cost since each firm is a price setter
B)   equal to marginal cost since each firm is a price taker
C)   below marginal cost since each firm is a price setter
D)   equal to marginal cost since each firm is a price setterE) A) and B)
F) All of the above

Question 15

When the gain from a product-variety externality exceeds the loss from a business stealing externality in a monopolistically competitive market:

Accepted Answer

A)   market efficiency is likely to be enhanced by the entrance of new firms in the market
B)   the market structure is likely to be in transition
C)   firms are more likely to operate at efficient scale
D)   there are likely to be too many firms in the marketE) None of the above
F) A) and C)

Question 16

Suppose that in the short run, a monopolistically competitive firm sells its product for $35 per unit. Its average total cost at this level of output is $39. This means that:

Accepted Answer

A)   the firm makes a short-run profit of $4 per unit
B)   the firm makes a short-run loss of $4 per unit
C)   the firm makes a short-run and long-run profit of $4 per unit
D)   the firm makes a short-run and long-run loss of $4 per unitE) None of the above
F) All of the above

Question 17

A new brewing company announces that it is releasing a new organic ale into the beer market. You can assume that the market for beer is characterised by monopolistic competition. According to the information provided, existing brewing companies are likely to experience what kind of externality as a result of the new ale?

Accepted Answer

A)   product-variety
B)   competitive
C)   advertising
D)   business-stealingE) All of the above
F) A) and B)

Question 18

A new brewing company announces that it is releasing a new organic ale into the beer market. You can assume that the market for beer is characterised by monopolistic competition. As a result of the new organic ale, product-variety externalities would be manifest in the new product:

Accepted Answer

A)   duplicating the flavours of the most expensive products in the beer market
B)   duplicating the flavours of the least expensive products in the beer market
C)   if its flavours were no different to the alternatives in the beer market
D)   generating flavours that are different to other products in the beer marketE) C) and D)
F) B) and D)

Question 19

When poor-quality products are advertised using cheap advertising, consumers learn to ignore such cheap advertising.

Accepted Answer

A) True 
 B)False

Question 20

In the market for hotel rooms in large metropolitan markets, the cost of a single night's stay can be several times higher than that of a similar room in a suburban market. If the market for hotel rooms is characterised by monopolistic competition, this difference in price can be partially explained by:

Accepted Answer

A)   a higher cost for accommodations to compensate for the lower cost of airfare into metropolitan markets
B)   the mark-up of price over a higher marginal cost in large metropolitan markets
C)   the cost of living in a large city
D)   transportation accessE) A) and B)
F) A) and C)

Exam 16: Monopolistic Competition

Critics of vacation advertisements that depict 'beautiful' human bodies on sun-drenched beaches as the primary focus of the message are likely to claim that the purpose of the advertisement is to:

Correct Answer
verified
D

In the short run, a firm in a monopolistically competitive market operates much like a monopolist.

Correct Answer
verified

In a monopolistically competitive industry, the profit-maximising firm will produce where marginal costs are equal to average total cost.

Correct Answer
verified

Correct Answer
verified

Inefficiency in monopolistically competitive markets can be identified with:

Correct Answer
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Regulation of a firm in a monopolistically competitive market:

Correct Answer
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One theory of advertising suggests that:

Correct Answer
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Excess capacity:

Correct Answer
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Advertising that uses celebrity endorsements is most likely intended to:

Correct Answer
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A

An important criticism of advertising is that in some markets it may:

Correct Answer
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Graph 17-4 -Refer to Graph 17-4. Which of the panels shown depicts a firm in a monopolistically competitive market earning economic profits in the short run?

Correct Answer
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C

A business-stealing externality is:

Correct Answer
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Which two curves are tangent in a monopolistically competitive market with zero economic profit?

Correct Answer
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In a monopolistically competitive industry, price is:

Correct Answer
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When the gain from a product-variety externality exceeds the loss from a business stealing externality in a monopolistically competitive market:

Correct Answer
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Suppose that in the short run, a monopolistically competitive firm sells its product for $35 per unit. Its average total cost at this level of output is $39. This means that:

Correct Answer
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Correct Answer
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A new brewing company announces that it is releasing a new organic ale into the beer market. You can assume that the market for beer is characterised by monopolistic competition. As a result of the new organic ale, product-variety externalities would be manifest in the new product:

Correct Answer
verified

When poor-quality products are advertised using cheap advertising, consumers learn to ignore such cheap advertising.

Correct Answer
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Correct Answer
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Exam 16: Monopolistic Competition

Critics of vacation advertisements that depict 'beautiful' human bodies on sun-drenched beaches as the primary focus of the message are likely to claim that the purpose of the advertisement is to:

Correct AnswerverifiedD

In the short run, a firm in a monopolistically competitive market operates much like a monopolist.

Correct AnswerverifiedShow Answer

In a monopolistically competitive industry, the profit-maximising firm will produce where marginal costs are equal to average total cost.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Inefficiency in monopolistically competitive markets can be identified with:

Correct AnswerverifiedShow Answer

Regulation of a firm in a monopolistically competitive market:

Correct AnswerverifiedShow Answer

One theory of advertising suggests that:

Correct AnswerverifiedShow Answer

Excess capacity:

Correct AnswerverifiedShow Answer

Advertising that uses celebrity endorsements is most likely intended to:

Correct AnswerverifiedA

An important criticism of advertising is that in some markets it may:

Correct AnswerverifiedShow Answer

Graph 17-4 -Refer to Graph 17-4. Which of the panels shown depicts a firm in a monopolistically competitive market earning economic profits in the short run?

Correct AnswerverifiedC

A business-stealing externality is:

Correct AnswerverifiedShow Answer

Which two curves are tangent in a monopolistically competitive market with zero economic profit?

Correct AnswerverifiedShow Answer

In a monopolistically competitive industry, price is:

Correct AnswerverifiedShow Answer

When the gain from a product-variety externality exceeds the loss from a business stealing externality in a monopolistically competitive market:

Correct AnswerverifiedShow Answer

Suppose that in the short run, a monopolistically competitive firm sells its product for $35 per unit. Its average total cost at this level of output is $39. This means that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A new brewing company announces that it is releasing a new organic ale into the beer market. You can assume that the market for beer is characterised by monopolistic competition. As a result of the new organic ale, product-variety externalities would be manifest in the new product:

Correct AnswerverifiedShow Answer

When poor-quality products are advertised using cheap advertising, consumers learn to ignore such cheap advertising.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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D

Correct Answer
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A

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C

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