Question 1

-Refer to Figure 9 -8. What is the amount of excess capacity?

Accepted Answer

A)  Qh  -Qg units 
B)  Qh  -Qf units 
C)  Qj  -Qh units 
D)  Qj -Qf units 
A)  Qh  -Qg units 
B)  Qh  -Qf units 
C)  Qj  -Qh units 
D)  Qj -Qf units D

Question 2

For allocative efficiency to hold,

Accepted Answer

A)  average total cost is minimized in production. 
B)  average variable cost is minimized in production. 
C)  price must equal marginal revenue of the last unit sold. 
D)  price must equal the marginal cost of the last unit produced. 
A)  average total cost is minimized in production. 
B)  average variable cost is minimized in production. 
C)  price must equal marginal revenue of the last unit sold. 
D)  price must equal the marginal cost of the last unit produced. D

Question 3

Coca -Cola has used Nancy Ajram to create the impression that Coca -Cola is superior to any other cola drink. Coca -Coal is attempting to

Accepted Answer

A)  differentiate Coca -Cola from other types of cola drinks. 
B)  lower the marginal cost of producing Coca -Cola. 
C)  convince consumers that Coca -Cola is no different from other cola drinks favored by celebrities. 
D)  increase its profit by raising the price of Coca -Cola. 
A)  differentiate Coca -Cola from other types of cola drinks. 
B)  lower the marginal cost of producing Coca -Cola. 
C)  convince consumers that Coca -Cola is no different from other cola drinks favored by celebrities. 
D)  increase its profit by raising the price of Coca -Cola. A

Question 4

At the peak of its success in the mid -1980s to the early 1990s, Apple Computer commanded a 15 percent share of the personal computers market. If iPad sales are included, Apple's share of the market was 10.8% in 2010.. Which of the following best accounts for its dwindling market share?

Accepted Answer

A)  Apple was not able to keep up with technological advancements in the personal computers market. 
B)  Rivals engaged in predatory pricing but Apple was not willing to engage in a price war. 
C)  The entry of rivals eliminated Apple's product differentiation. 
D)  The entry of rivals revealed that Apples was producing sub -standard computers. 
A)  Apple was not able to keep up with technological advancements in the personal computers market. 
B)  Rivals engaged in predatory pricing but Apple was not willing to engage in a price war. 
C)  The entry of rivals eliminated Apple's product differentiation. 
D)  The entry of rivals revealed that Apples was producing sub -standard computers.

Question 5

Aramex is a worldwide provider of integrated supply-chain solutions. In the last 18 years, it has grown to compete with the big four of this industry: DHL, FedEx, UPS, and TNT. Aramex has a widespread presence and partial dominance of the express and postal market in the Middle East and North Africa region. This is an example of a ________ for Aramex.

Accepted Answer

A)  differentiation strategy. 
B)  supply -side solution. 
C)  chain -edge. 
D)  competitive advantage. 
A)  differentiation strategy. 
B)  supply -side solution. 
C)  chain -edge. 
D)  competitive advantage.

Question 6

Suppose Dar Al -Shorouk, the Beirut -based publishing company, is considering expanding its production of an already published book. Dar Al -Shorouk's managers want to estimate the marginal cost of production. How can they best do this?

Accepted Answer

A)  by adding a desirable profit margin to the book's selling price to cover overheads such as rent and editor's salaries and dividing that amount by the planned number of copies to be published 
B)  by adding up every expense associated with the book, including the overhead like rent and editors' salaries, and then dividing by the planned number of copies to be published 
C)  by using the book's selling price as an indicator of the marginal cost since price equals marginal cost is a profit maximizing rule 
D)  by adding up only the variable costs associated with a book, such as printing cost, and excluding overheads like rent and editors' salaries, and then dividing the total variable costs by the planned number of copies number of copies to be published 
A)  by adding a desirable profit margin to the book's selling price to cover overheads such as rent and editor's salaries and dividing that amount by the planned number of copies to be published 
B)  by adding up every expense associated with the book, including the overhead like rent and editors' salaries, and then dividing by the planned number of copies to be published 
C)  by using the book's selling price as an indicator of the marginal cost since price equals marginal cost is a profit maximizing rule 
D)  by adding up only the variable costs associated with a book, such as printing cost, and excluding overheads like rent and editors' salaries, and then dividing the total variable costs by the planned number of copies number of copies to be published

Question 7

You have just opened a new Lebanese restaurant in your hometown where there are three other Lebanese restaurants. Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Lebanese cuisine using locally grown organic produce. What is likely to happen to your business in the long run?

Accepted Answer

A)  Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero. 
B)  If you continue to maintain consistent quality, you will be able to earn profits indefinitely. 
C)  If your success continues, you will be likely to establish a franchise and expand your market size. 
D)  Your competitors are likely to change their menus to make their products more similar to yours. 
A)  Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero. 
B)  If you continue to maintain consistent quality, you will be able to earn profits indefinitely. 
C)  If your success continues, you will be likely to establish a franchise and expand your market size. 
D)  Your competitors are likely to change their menus to make their products more similar to yours.

Question 8

How does the long run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

Accepted Answer

A)  A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production. 
B)  A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level. 
C)  A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit. 
D)  A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible. 
A)  A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production. 
B)  A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level. 
C)  A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit. 
D)  A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.

Question 9

One of your classmates asserts that advertising, marketing research, and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying. Which of the following is not a response you might offer her?

Accepted Answer

A)  Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations. 
B)  If a firm successfully manages its brand, customers become less price sensitive as they perceive fewer substitutes for the firm's brand. 
C)  Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences. 
D)  Marketing research could allow a firm to identify new market opportunities and at least, in the short run, a firm can make a profit supplying products to this market segment. 
A)  Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations. 
B)  If a firm successfully manages its brand, customers become less price sensitive as they perceive fewer substitutes for the firm's brand. 
C)  Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences. 
D)  Marketing research could allow a firm to identify new market opportunities and at least, in the short run, a firm can make a profit supplying products to this market segment.

Question 10

In what sense is a firm in monopolistically competition a monopoly in its market?

Accepted Answer

A)  It acts to maximize market share. 
B)  It acts independently of other sellers. 
C)  It sells a unique product. 
D)  It is able to erect entry barriers by deliberately lowering its price. 
A)  It acts to maximize market share. 
B)  It acts independently of other sellers. 
C)  It sells a unique product. 
D)  It is able to erect entry barriers by deliberately lowering its price.

Question 11

You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants. You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce. What is likely to happen in the restaurant market in your hometown after you open?

Accepted Answer

A)  The demand curve facing each restaurant owner becomes more elastic. 
B)  Your competitors are likely to change their menus to make their products more similar to yours. 
C)  The demand curve facing each restaurant owner shifts to the right. 
D)  While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic. 
A)  The demand curve facing each restaurant owner becomes more elastic. 
B)  Your competitors are likely to change their menus to make their products more similar to yours. 
C)  The demand curve facing each restaurant owner shifts to the right. 
D)  While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic.

Question 12

A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?

Accepted Answer

A)  The firm is protected by a first -mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs. 
B)  They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product. 
C)  The firm's cost increases as it improves the product but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode although its market share remains secure. 
D)  Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products. 
A)  The firm is protected by a first -mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs. 
B)  They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product. 
C)  The firm's cost increases as it improves the product but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode although its market share remains secure. 
D)  Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products.

Question 13

Dunkin Donuts' new marketing strategy attempts to make new branches look more like Starbucks as the coffeehouse expands. Dunkin Donuts, a competitor of Starbucks, is most likely imitating Starbucks because:

Accepted Answer

A)  Dunkin Donuts cannot afford to develop any original ideas. 
B)  Starbucks customers are better than the current loyal Dunkin Donuts custormers. 
C)  Starbucks was unsuccessful in differentiating its products. 
D)  Starbucks successfully differentiated its product. 
A)  Dunkin Donuts cannot afford to develop any original ideas. 
B)  Starbucks customers are better than the current loyal Dunkin Donuts custormers. 
C)  Starbucks was unsuccessful in differentiating its products. 
D)  Starbucks successfully differentiated its product.

Question 14

By making its shops appear more like Starbucks, Dunkin Donuts is hoping to attract new customers who like both Dunkin Donuts' features and a bit of Starbucks' features. This strategy is unlikely to attract loyal Starbucks customers because:

Accepted Answer

A)  Loyal Starbucks customers think "Dunkin Donuts" is a silly name. 
B)  Starbucks pays its loyal customers royalty fees. 
C)  It makes Dunkin Donuts appear unoriginal. 
D)  None of the above. 
A)  Loyal Starbucks customers think "Dunkin Donuts" is a silly name. 
B)  Starbucks pays its loyal customers royalty fees. 
C)  It makes Dunkin Donuts appear unoriginal. 
D)  None of the above.

Question 15

A franchise is

Accepted Answer

A)  a firm with the legal right to sell a good or service in a particular area. 
B)  a firm with no competitors. 
C)  a branch of a national company. 
D)  a firm that buys and operates a brand name business in a new market. 
A)  a firm with the legal right to sell a good or service in a particular area. 
B)  a firm with no competitors. 
C)  a branch of a national company. 
D)  a firm that buys and operates a brand name business in a new market.

Question 16

Which of the following statements is true about advertising by a monopolistically competitive firm?

Accepted Answer

A)  Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products. 
B)  Advertising could make the monopolistic competitor's demand more inelastic but advertising has no effect on a perfect competitor's demand. 
C)  Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry. 
D)  Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product. 
A)  Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products. 
B)  Advertising could make the monopolistic competitor's demand more inelastic but advertising has no effect on a perfect competitor's demand. 
C)  Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry. 
D)  Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product.

Question 17

-Refer to Figure 9 -6. The firm represented in the diagram makes

Accepted Answer

A)  should exit the industry. 
B)  makes zero accounting profit. 
C)  should expand its output to take advantage of economies of scale. 
D)  makes zero economic profit. 
A)  should exit the industry. 
B)  makes zero accounting profit. 
C)  should expand its output to take advantage of economies of scale. 
D)  makes zero economic profit.

Question 18

-Refer to Figure 9 -9. Which of the following statements is true?

Accepted Answer

A)  Da represents the long run demand curve facing a monopolistic competitor in a constant cost industry while Db depicts the long run demand curve in an increasing cost industry. 
B)  Da represents the long run demand curve facing a monopolistic competitor in a constant cost industry while Db depicts the demand curve in the short run. 
C)  Da represents the long run supply curve in a perfectly competitive constant cost industry while Db depicts the long run demand curve facing a monopolizing competitor in a decreasing cost industry. 
D)  Da represents the long run demand curve facing a perfect competitor while Db depicts the long run demand curve facing a monopolizing competitor. 
A)  Da represents the long run demand curve facing a monopolistic competitor in a constant cost industry while Db depicts the long run demand curve in an increasing cost industry. 
B)  Da represents the long run demand curve facing a monopolistic competitor in a constant cost industry while Db depicts the demand curve in the short run. 
C)  Da represents the long run supply curve in a perfectly competitive constant cost industry while Db depicts the long run demand curve facing a monopolizing competitor in a decreasing cost industry. 
D)  Da represents the long run demand curve facing a perfect competitor while Db depicts the long run demand curve facing a monopolizing competitor.

Question 19

In 1984 when Apple Computer introduced the Macintosh, it was able to sell the product at a hefty premium while comparable personal computers were priced at less than half the price of a Macintosh. Despite its much higher price, Apple was able to achieve a 15 percent market share. Which of the following contributed to Apple's initial success?

Accepted Answer

A)  Apple had successfully introduced a personal computer that was strongly differentiated from its competitors. 
B)  Apple spent heavily on advertising to inform consumers about its product. 
C)  Apple used superior materials to produce its product which justified the higher price. 
D)  Apple was catering to a small segment of the market in which demand is relatively inelastic. 
A)  Apple had successfully introduced a personal computer that was strongly differentiated from its competitors. 
B)  Apple spent heavily on advertising to inform consumers about its product. 
C)  Apple used superior materials to produce its product which justified the higher price. 
D)  Apple was catering to a small segment of the market in which demand is relatively inelastic.

Question 20

-Refer to Figure 9 -8. In the long run, why will the firm produce Qf units and not Qg units, which has a lower its average cost of production?

Accepted Answer

A)  At Qg, marginal revenue t is less than average revenue cost which will result in a loss for the firm. 
B)  At Qg, average cost exceeds marginal cost so the firm will actually make a loss. 
C)  The firm's goal is to charge a high price and make a small profit rather than a low price and no profit. 
D)  Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss. 
A)  At Qg, marginal revenue t is less than average revenue cost which will result in a loss for the firm. 
B)  At Qg, average cost exceeds marginal cost so the firm will actually make a loss. 
C)  The firm's goal is to charge a high price and make a small profit rather than a low price and no profit. 
D)  Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.

Exam 9: Monopolistic Competition: The Competitive Model in a More Realistic Setting

-Refer to Figure 9 -8. What is the amount of excess capacity?

For allocative efficiency to hold,

Coca -Cola has used Nancy Ajram to create the impression that Coca -Cola is superior to any other cola drink. Coca -Coal is attempting to

At the peak of its success in the mid -1980s to the early 1990s, Apple Computer commanded a 15 percent share of the personal computers market. If iPad sales are included, Apple's share of the market was 10.8% in 2010.. Which of the following best accounts for its dwindling market share?

Suppose Dar Al -Shorouk, the Beirut -based publishing company, is considering expanding its production of an already published book. Dar Al -Shorouk's managers want to estimate the marginal cost of production. How can they best do this?

How does the long run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

One of your classmates asserts that advertising, marketing research, and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying. Which of the following is not a response you might offer her?

In what sense is a firm in monopolistically competition a monopoly in its market?

A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?

Dunkin Donuts' new marketing strategy attempts to make new branches look more like Starbucks as the coffeehouse expands. Dunkin Donuts, a competitor of Starbucks, is most likely imitating Starbucks because:

By making its shops appear more like Starbucks, Dunkin Donuts is hoping to attract new customers who like both Dunkin Donuts' features and a bit of Starbucks' features. This strategy is unlikely to attract loyal Starbucks customers because:

A franchise is

Which of the following statements is true about advertising by a monopolistically competitive firm?

-Refer to Figure 9 -6. The firm represented in the diagram makes

-Refer to Figure 9 -9. Which of the following statements is true?

-Refer to Figure 9 -8. In the long run, why will the firm produce Qf units and not Qg units, which has a lower its average cost of production?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Elasticity: The Responsiveness of Demand and Supply

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

Externalities, Environmental Policy, and Public Goods

Comparative Advantage and the Gains From International Trade Macro

GDP: Measuring Total Production and Income

Economic Growth, the Financial System, and Business Cycles

Unemployment and Inflation

The Markets for Labor and Other Factors of Production

Output and Expenditure in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Central Bank

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Central Bank Policy

Macroeconomics in an Open Economy

Filters

-Refer to Figure 9 -8. In the long run, why will the firm produce Q_funits and not Q_gunits, which has a lower its average cost of production?