Question 1

Economists agree that a monopolistically competitive market structure

Accepted Answer

A)  lowers consumer utility because consumers pay a price higher than the marginal cost of production. 
B)  is detrimental to society because it leads to a waste of scarce resources. 
C)  benefits consumers because firms produce products that appeal to a wide range of consumer tastes. 
D)  can eliminate any excess capacity if all firms in the industry devote more funds to differentiating their products. 
A)  lowers consumer utility because consumers pay a price higher than the marginal cost of production. 
B)  is detrimental to society because it leads to a waste of scarce resources. 
C)  benefits consumers because firms produce products that appeal to a wide range of consumer tastes. 
D)  can eliminate any excess capacity if all firms in the industry devote more funds to differentiating their products.

Question 2

Productive efficiency does not hold for a profit-maximizing,monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.

Accepted Answer

A) True 
 B)False

Question 3

If Starbucks is successful at luring away competitor's customers with its new health and wellness stores,what will be the effect on Starbucks' demand and marginal revenue curves?

Accepted Answer

A)  They will both shift to the right. 
B)  They will both shift to the left. 
C)  Demand will shift to the left and marginal revenue will shift to the right. 
D)  Demand will shift to the right and marginal revenue will shift to the left. 
A)  They will both shift to the right. 
B)  They will both shift to the left. 
C)  Demand will shift to the left and marginal revenue will shift to the right. 
D)  Demand will shift to the right and marginal revenue will shift to the left.

Question 4

What is the difference between zero accounting profit and zero economic profit?

Accepted Answer

Economic profits take into account oppor

Question 5

Table 13-3
   
Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.
-Refer to Table 13-3.What is the amount of the firm's loss at its optimal output level?

Accepted Answer

A)  $0 
B)  $41 
C)  $45 
D)  $50 
A)  $0 
B)  $41 
C)  $45 
D)  $50

Question 6

Table 13-3
   
Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm.
-Refer to Table 13-3.What is the best course of action for the firm in the short run?

Accepted Answer

A)  It should shut down. 
B)  It should stay in business because it covers some of its fixed cost. 
C)  It should increase its sales by lowering its price. 
D)  It should not cut its price but it should increase its sales by advertising. 
A)  It should shut down. 
B)  It should stay in business because it covers some of its fixed cost. 
C)  It should increase its sales by lowering its price. 
D)  It should not cut its price but it should increase its sales by advertising.

Question 7

Which of the following is true of a typical firm in a monopolistically competitive industry?

Accepted Answer

A)  Product differentiation allows a successful firm to emerge as a market leader in the industry. 
B)  All firms have identical cost structures. 
C)  The more successful firms have an incentive to merge in order to exert greater market power. 
D)  Each firm acts independently. 
A)  Product differentiation allows a successful firm to emerge as a market leader in the industry. 
B)  All firms have identical cost structures. 
C)  The more successful firms have an incentive to merge in order to exert greater market power. 
D)  Each firm acts independently.

Question 8

If buyers of a monopolistically competitive product feel the products of different sellers are strongly differentiated,then the demand for each seller's product is

Accepted Answer

A)  perfectly inelastic. 
B)  perfectly elastic. 
C)  relatively inelastic. 
D)  relatively elastic. 
A)  perfectly inelastic. 
B)  perfectly elastic. 
C)  relatively inelastic. 
D)  relatively elastic.

Question 9

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

Accepted Answer

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

Question 10

Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?

Accepted Answer

A)  the ability to produce the product at a lower cost 
B)  changing consumer tastes 
C)  a rise in the price of a key input, for example, a rise in the price of oil leads to higher energy costs 
D)  the number of competitors in the market 
A)  the ability to produce the product at a lower cost 
B)  changing consumer tastes 
C)  a rise in the price of a key input, for example, a rise in the price of oil leads to higher energy costs 
D)  the number of competitors in the market

Question 11

A trademark is

Accepted Answer

A)  a legal instrument which grants a firm the right to differentiate its product. 
B)  a legal right to position a firm's product in high-traffic public areas such as airports and post offices. 
C)  a patent on a firm's product. 
D)  a distinguishing attribute such as a sign or logo that allows a firm to uniquely identify its product. 
A)  a legal instrument which grants a firm the right to differentiate its product. 
B)  a legal right to position a firm's product in high-traffic public areas such as airports and post offices. 
C)  a patent on a firm's product. 
D)  a distinguishing attribute such as a sign or logo that allows a firm to uniquely identify its product.

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)  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. 
D)  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. 
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)  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. 
D)  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.

Question 13

Figure 13-7   Figure 13-7 
shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 13-7.If the diagram represents a typical firm in the designer watch market,what is likely to happen in the long run?

Accepted Answer

A)  Some firms will exit the market causing the demand to increase for firms remaining in the market. 
B)  The firms that are making losses will be purchased by their more successful rivals. 
C)  Inefficient firms will exit the market and new cost efficient firms will enter the market. 
D)  Firms will have to raise their prices to cover costs of production. 
A)  Some firms will exit the market causing the demand to increase for firms remaining in the market. 
B)  The firms that are making losses will be purchased by their more successful rivals. 
C)  Inefficient firms will exit the market and new cost efficient firms will enter the market. 
D)  Firms will have to raise their prices to cover costs of production.

Question 14

Brand management refers to

Accepted Answer

A)  picking a brand name for a new product that will attract attention. 
B)  the efforts to maintain the differentiation of a product over time. 
C)  efforts to reduce the cost of production. 
D)  selling the right to use a brand name in a particular market. 
A)  picking a brand name for a new product that will attract attention. 
B)  the efforts to maintain the differentiation of a product over time. 
C)  efforts to reduce the cost of production. 
D)  selling the right to use a brand name in a particular market.

Question 15

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 earn economic profits but a firm in perfect competition earns zero profit. 
B)  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. 
C)  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. 
D)  A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level. 
A)  A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit. 
B)  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. 
C)  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. 
D)  A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level.

Question 16

A monopolistically competitive firm will

Accepted Answer

A)  charge the same price as its competitors do. 
B)  always produce at the minimum efficient scale of production. 
C)  have some control over its price because its product is differentiated. 
D)  produce an output level that is productively and allocatively efficient. 
A)  charge the same price as its competitors do. 
B)  always produce at the minimum efficient scale of production. 
C)  have some control over its price because its product is differentiated. 
D)  produce an output level that is productively and allocatively efficient.

Question 17

If a firm faces a downward-sloping demand curve,

Accepted Answer

A)  the demand for its product must be inelastic. 
B)  it can control both price and quantity sold. 
C)  it must reduce its price to sell more units. 
D)  it will always make a profit. 
A)  the demand for its product must be inelastic. 
B)  it can control both price and quantity sold. 
C)  it must reduce its price to sell more units. 
D)  it will always make a profit.

Question 18

A major difference between monopolistic competition and perfect competition is

Accepted Answer

A)  the number of sellers in the markets. 
B)  the degree by which the market demand curves slope downwards. 
C)  that products are not standardized in monopolistic competition unlike in perfect competition. 
D)  the barriers to entry in the two markets. 
A)  the number of sellers in the markets. 
B)  the degree by which the market demand curves slope downwards. 
C)  that products are not standardized in monopolistic competition unlike in perfect competition. 
D)  the barriers to entry in the two markets.

Question 19

In monopolistic competition there is/are

Accepted Answer

A)  many sellers who each face a downward-sloping demand curve. 
B)  a few sellers who each face a downward-sloping demand curve. 
C)  only one seller who faces a downward-sloping demand curve. 
D)  many sellers who each face a perfectly elastic demand curve. 
A)  many sellers who each face a downward-sloping demand curve. 
B)  a few sellers who each face a downward-sloping demand curve. 
C)  only one seller who faces a downward-sloping demand curve. 
D)  many sellers who each face a perfectly elastic demand curve.

Question 20

Arturo runs a Taco Bell franchise.He is selling 250 Gordita Supremes per week at a price of $2.75.If he lowers the price to $2.70,he will sell 251 Gordita Supremes.What is the marginal revenue of the 251st Gordita Supreme? If selling the extra Gordita Supreme adds $0.20 to Arturo's costs,what will be the effect on his profit from selling 251 Gordita Supremes instead of 250?

Accepted Answer

The marginal revenue of the 251st Gordit

Exam 13: Monopolistic Competition: The Competitive Model in a More Realistic Setting

Economists agree that a monopolistically competitive market structure

Productive efficiency does not hold for a profit-maximizing,monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.

If Starbucks is successful at luring away competitor's customers with its new health and wellness stores,what will be the effect on Starbucks' demand and marginal revenue curves?

What is the difference between zero accounting profit and zero economic profit?

Table 13-3 Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 13-3.What is the amount of the firm's loss at its optimal output level?

Table 13-3 Table 13-3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 13-3.What is the best course of action for the firm in the short run?

Which of the following is true of a typical firm in a monopolistically competitive industry?

If buyers of a monopolistically competitive product feel the products of different sellers are strongly differentiated,then the demand for each seller's product is

Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?

A trademark is

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?

Figure 13-7 Figure 13-7 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-7.If the diagram represents a typical firm in the designer watch market,what is likely to happen in the long run?

Brand management refers to

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

A monopolistically competitive firm will

If a firm faces a downward-sloping demand curve,

A major difference between monopolistic competition and perfect competition is

In monopolistic competition there is/are

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

Externalities, environmental Policy, and Public Goods

Elasticity: The Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

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

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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