Question 1

Figure 17-6
  
-Refer to Figure 17-6.At the profit-maximizing,or loss-minimizing,output level,the firm in this figure has total costs of approximately

Accepted Answer

A) $2,000. 
B) $3,000. 
C) $4,000 
D) $5,000 
A) $2,000. 
B) $3,000. 
C) $4,000 
D) $5,000 D

Question 2

A monopolistically competitive firm's choice of output level is virtually identical to the choice made by

Accepted Answer

A) a perfectly competitive firm. 
B) a duopolist. 
C) a monopolist. 
D) an oligopolist. 
A) a perfectly competitive firm. 
B) a duopolist. 
C) a monopolist. 
D) an oligopolist. C

Question 3

Which of the following goods are likely to be sold in a monopolistically competitive market?

Accepted Answer

A) Compact discs 
B) Wheat 
C) Corn 
D) Postage stamps 
A) Compact discs 
B) Wheat 
C) Corn 
D) Postage stamps A

Question 4

A firm in a monopolistically competitive market is similar to a monopoly in the sense that (i)	they both face downward-sloping demand curves.
(ii)	they both charge a price that exceeds marginal cost.
(iii)	free entry and exit determines the long-run equilibrium.

Accepted Answer

A) (i) only 
B) (ii) only 
C) (i) and (ii) 
D) (i), (ii), and (iii) 
A) (i) only 
B) (ii) only 
C) (i) and (ii) 
D) (i), (ii), and (iii)

Question 5

Which of the following conditions distinguishes monopolistic competition from perfect competition?

Accepted Answer

A) The number of sellers in the market 
B) The freedom of entry and exit by firms in the market 
C) The size of firms in the market 
D) Product differentiation 
A) The number of sellers in the market 
B) The freedom of entry and exit by firms in the market 
C) The size of firms in the market 
D) Product differentiation

Question 6

A monopolistically competitive firm is currently producing 10 units of output.At this level of output the firm is charging a price equal to $10,has marginal revenue equal to $6,has marginal cost equal to $6,and has average total cost equal to $12.From this information we can infer that

Accepted Answer

A) the firm is currently maximizing its profit. 
B) the profits of the firm are negative. 
C) firms are likely to leave this market in the long run. 
D) All of the above 
A) the firm is currently maximizing its profit. 
B) the profits of the firm are negative. 
C) firms are likely to leave this market in the long run. 
D) All of the above

Question 7

Product differentiation in monopolistically competitive markets ensures that,for profit-maximizing firms,

Accepted Answer

A) marginal revenue will equal average total cost. 
B) price will exceed marginal cost. 
C) marginal cost will exceed average revenue. 
D) average variable cost will be declining. 
A) marginal revenue will equal average total cost. 
B) price will exceed marginal cost. 
C) marginal cost will exceed average revenue. 
D) average variable cost will be declining.

Question 8

Monopolistic competition is characterized by which of the following attributes? (i)	Free entry
(ii)	Product differentiation
(iii)	Many sellers

Accepted Answer

A) (i) and (iii) only 
B) (i) and (ii) only 
C) (ii) and (iii) only 
D) (i), (ii), and (iii) 
A) (i) and (iii) only 
B) (i) and (ii) only 
C) (ii) and (iii) only 
D) (i), (ii), and (iii)

Question 9

Scenario 17-2
Consider the problem facing two firms, Firm A and Firm B, in the fast-food restaurant market. Each firm has just come up with an idea for a new fast-food menu item which it would sell for $4. Assume that the marginal cost for each new menu item is a constant $2, and the only fixed cost is for advertising. Each company knows that if it spends $12 million on advertising it will get 2 million consumers to try its new product. Firm A has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 2 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Firm B's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year. On the basis of its market research, Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year, for a total of 24 million units.
-Refer to Scenario 17-2.If Firm A decides to advertise its product it can expect to

Accepted Answer

A) get repeat sales above and beyond the initial 2 million consumers. 
B) increase its market power. 
C) incur a loss of $8 million. 
D) have a profit of $4 million. 
A) get repeat sales above and beyond the initial 2 million consumers. 
B) increase its market power. 
C) incur a loss of $8 million. 
D) have a profit of $4 million.

Question 10

Table 17-3
Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for Traci's Hairstyling.
  
-Refer to Table 17-3.At the profit-maximizing quantity,what is Traci's total profit?

Accepted Answer

A) $30 
B) $59 
C) $77 
D) $84 
A) $30 
B) $59 
C) $77 
D) $84

Question 11

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Accepted Answer

A) The monopolistically competitive firm advertises. 
B) The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level. 
C) Monopolistic competition features many buyers. 
D) Monopolistic competition features many sellers. 
A) The monopolistically competitive firm advertises. 
B) The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level. 
C) Monopolistic competition features many buyers. 
D) Monopolistic competition features many sellers.

Question 12

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with

Accepted Answer

A) information about the availability of the product. 
B) information about product price. 
C) a signal of product quality. 
D) a good example of wasted resources. 
A) information about the availability of the product. 
B) information about product price. 
C) a signal of product quality. 
D) a good example of wasted resources.

Question 13

Under which of the following market structures would consumers likely pay the highest price for a product?

Accepted Answer

A) Perfect competition 
B) Monopolistic competition 
C) Oligopoly 
D) Monopoly 
A) Perfect competition 
B) Monopolistic competition 
C) Oligopoly 
D) Monopoly

Question 14

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market

Accepted Answer

A) is characterized by market-share maximization. 
B) has no barriers to entry. 
C) faces a downward-sloping demand curve for its product. 
D) faces a horizontal demand curve at the market clearing price. 
A) is characterized by market-share maximization. 
B) has no barriers to entry. 
C) faces a downward-sloping demand curve for its product. 
D) faces a horizontal demand curve at the market clearing price.

Question 15

In which of the following market structures do firms produce the welfare-maximizing level of output?

Accepted Answer

A) Perfect competition 
B) Monopolistic competition 
C) Monopoly 
D) Both a and b 
A) Perfect competition 
B) Monopolistic competition 
C) Monopoly 
D) Both a and b

Question 16

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

Accepted Answer

A) True 
 B)False

Question 17

If advertising decreases the elasticity of demand for specific brand names of hard liquor,we would expect firms to be able to charge a larger markup over marginal cost.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Figure 17-2
  
-Refer to Figure 17-2.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money?

Accepted Answer

A) Panel a 
B) Panel b 
C) Panel c 
D) Panel d 
A) Panel a 
B) Panel b 
C) Panel c 
D) Panel d

Question 20

Figure 17-3
The lines in the figures below illustrate the potential effect of entry and exit in a monopolistically competitive market on either the demand curve or the marginal cost curve of existing firms.
  
-Refer to Figure 17-3.Which of the diagrams illustrates the impact of some existing firms leaving the market?

Accepted Answer

A) Panel a 
B) Panel b 
C) Panel c 
D) Panel d 
A) Panel a 
B) Panel b 
C) Panel c 
D) Panel d

Exam 17: Monopolistic Competition

Figure 17-6 -Refer to Figure 17-6.At the profit-maximizing,or loss-minimizing,output level,the firm in this figure has total costs of approximately

A monopolistically competitive firm's choice of output level is virtually identical to the choice made by

Which of the following goods are likely to be sold in a monopolistically competitive market?

A firm in a monopolistically competitive market is similar to a monopoly in the sense that (i) they both face downward-sloping demand curves. (ii) they both charge a price that exceeds marginal cost. (iii) free entry and exit determines the long-run equilibrium.

Which of the following conditions distinguishes monopolistic competition from perfect competition?

A monopolistically competitive firm is currently producing 10 units of output.At this level of output the firm is charging a price equal to $10,has marginal revenue equal to $6,has marginal cost equal to $6,and has average total cost equal to $12.From this information we can infer that

Product differentiation in monopolistically competitive markets ensures that,for profit-maximizing firms,

Monopolistic competition is characterized by which of the following attributes? (i) Free entry (ii) Product differentiation (iii) Many sellers

Table 17-3 Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for Traci's Hairstyling. -Refer to Table 17-3.At the profit-maximizing quantity,what is Traci's total profit?

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with

Under which of the following market structures would consumers likely pay the highest price for a product?

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market

In which of the following market structures do firms produce the welfare-maximizing level of output?

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

If advertising decreases the elasticity of demand for specific brand names of hard liquor,we would expect firms to be able to charge a larger markup over marginal cost.

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.

Figure 17-2 -Refer to Figure 17-2.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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