Question 1

An important defence of advertising is that it is not rational for profit-maximising firms to spend money on advertising for products that:

Accepted Answer

A)   are superior quality
B)   have low prices
C)   have high prices
D)   are inferior qualityE) B) and C)
F) None of the above

Question 2

An important distinction between a profit-maximising firm in a monopolistically competitive market differs and a firm in a perfectly competitive market is the firm in the monopolistically competitive market:

Accepted Answer

A)   faces a downward-sloping demand curve for its product
B)   faces a horizontal demand curve at the market clearing price
C)   is characterised by market share maximisation
D)   produces where marginal cost is equal to marginal revenueE) All of the above
F) B) and C)

Question 3

Advertising may impede competition by fostering brand loyalty and allowing firms to increase their mark-up.

Accepted Answer

A) True 
 B)False

Question 4

When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will:

Accepted Answer

A)   shift in an unpredictable direction
B)   shift to the right
C)   shift to the left
D)   remain unchanged; only the supply curve will shiftE) B) and C)
F) A) and D)

Question 5

In a small university town, four micro-breweries have opened in the last two years. Demonstrate the effect of these new market entrants on demand for incumbent firms (micro-breweries) that already served this market.
Assume that the local community now places a moratorium on new liquor licenses for micro-breweries. How will this moratorium affect the long-run profitability of incumbent firms?

Accepted Answer

The arrival of a new entrant should be g...

Question 6

If a firm in a monopolistically competitive market uses advertising to decrease elasticity of demand for its product:

Accepted Answer

A)   it will be able to increase its mark-up over marginal cost
B)   the firm will eventually have to lower its price to remain competitive
C)   it will increase the wellbeing of society
D)   it will reduce average total costE) All of the above
F) A) and B)

Question 7

When advertising is used to strengthen brand loyalty:

Accepted Answer

A)   consumers become less sensitive to price differences among similar goods
B)   demand for the product becomes more elastic
C)   firms should lower price to increase revenue
D)   consumer demand for related products is typically unaffectedE) A) and D)
F) A) and C)

Question 8

In the long-run equilibrium in a monopolistic market, a profit-maximising firm's output is where marginal cost is less than marginal revenue.

Accepted Answer

A) True 
 B)False

Question 9

A monopolistically competitive firm chooses its production level the same way as a(n) :

Accepted Answer

A)   duopolist
B)   oligopolist
C)   perfectly competitive firm
D)   monopolistE) A) and D)
F) A) and B)

Question 10

The debate over whether advertising serves a valuable purpose in society is still unconfirmed by economists.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that in the short run, a monopolistically competitive firm sells its product for $40 per unit. Its average total cost at the optimal level of output is $30. This means that:

Accepted Answer

A)   the firm makes a loss in the short run and the long run
B)   the firm makes a profit in the short run and the long run
C)   the firm's demand curve will shift to the left as new firms enter the market
D)   the firm's demand curve will shift to the right as new firms leave the marketE) B) and C)
F) C) and D)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

How might a brand name ensure that customers buy high-quality goods?

Accepted Answer

There are two related arguments. Brand n...

Question 14

A recent outbreak of hepatitis was linked to a national fast-food restaurant chain. This is an example where:

Accepted Answer

A)   brand name identity increases the effectiveness of markets
B)   advertising is ineffective in salvaging perceptions of product quality
C)   advertising cannot be used to establish brand loyalty
D)   brand name identity can be detrimental to the profitability of a firmE) A) and D)
F) B) and C)

Question 15

In the long run, a firm in a perfectly competitive market operates at:

Accepted Answer

A)   efficient scale and a monopolistically competitive firm operates at excess capacity
B)   efficient scale and a monopolistically competitive firm operates at efficient scale
C)   excess capacity and a monopolistically competitive firm operates at excess capacity
D)   excess capacity and a monopolistically competitive firm operates at efficient scaleE) A) and C)
F) B) and C)

Question 16

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost:

Accepted Answer

A)   monopolistically competitive firms would respond by lowering their costs
B)   new firms that enter the market would use better technology
C)   many firms will experience increased profits
D)   many firms would require a subsidy to stay in businessE) All of the above
F) A) and C)

Question 17

Which of the following markets impose deadweight losses on society? (i)  monopoly
(ii)  monopolistic competition
(iii)  oligopoly

Accepted Answer

A)   (i)  and (ii) 
B)   (ii)  and (iii) 
C)   (i)  and (iii) 
D)   (i)  and (ii)  and (iii) E) A) and D)
F) B) and D)

Question 18

A monopolistically competitive firm, unlike a perfectly competitive firm, could increase the quantity it produces and lower the:

Accepted Answer

A)   demand for its product
B)   average total cost of production
C)   total fixed costs of production
D)   average fixed costs of productionE) All of the above
F) C) and D)

Question 19

There is general disagreement among economists about the role of advertising, but there is widespread agreement about the effect of brand names on market efficiency.

Accepted Answer

A) True 
 B)False

Question 20

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) A) and B)
F) B) and D)

Exam 18: Monopolistic Competition

Correct Answer
verified
The arrival of a new entrant should be g...
View Answer

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost:

Correct Answer
verified

The debate over whether advertising serves a valuable purpose in society is still unconfirmed by economists.

Correct Answer
verified

Which of the following markets impose deadweight losses on society? (i) monopoly (ii) monopolistic competition (iii) oligopoly

Correct Answer
verified

An important distinction between a profit-maximising firm in a monopolistically competitive market differs and a firm in a perfectly competitive market is the firm in the monopolistically competitive market:

Correct Answer
verified

A monopolistically competitive firm, unlike a perfectly competitive firm, could increase the quantity it produces and lower the:

Correct Answer
verified

When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will:

Correct Answer
verified

If a firm in a monopolistically competitive market uses advertising to decrease elasticity of demand for its product:

Correct Answer
verified

Correct Answer
verified

A monopolistically competitive firm chooses its production level the same way as a(n) :

Correct Answer
verified

There is general disagreement among economists about the role of advertising, but there is widespread agreement about the effect of brand names on market efficiency.

Correct Answer
verified

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

Correct Answer
verified

In the long run, a firm in a perfectly competitive market operates at:

Correct Answer
verified

Advertising may impede competition by fostering brand loyalty and allowing firms to increase their mark-up.

Correct Answer
verified

A recent outbreak of hepatitis was linked to a national fast-food restaurant chain. This is an example where:

Correct Answer
verified

Suppose that in the short run, a monopolistically competitive firm sells its product for $40 per unit. Its average total cost at the optimal level of output is $30. This means that:

Correct Answer
verified

How might a brand name ensure that customers buy high-quality goods?

Correct Answer
verified
There are two related arguments. Brand n...
View Answer

When advertising is used to strengthen brand loyalty:

Correct Answer
verified

In the long-run equilibrium in a monopolistic market, a profit-maximising firm's output is where marginal cost is less than marginal revenue.

Correct Answer
verified

An important defence of advertising is that it is not rational for profit-maximising firms to spend money on advertising for products that:

Correct Answer
verified

Exam 18: Monopolistic Competition

Correct AnswerverifiedThe arrival of a new entrant should be g...View AnswerShow Answer

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost:

Correct AnswerverifiedShow Answer

The debate over whether advertising serves a valuable purpose in society is still unconfirmed by economists.

Correct AnswerverifiedShow Answer

Which of the following markets impose deadweight losses on society? (i) monopoly (ii) monopolistic competition (iii) oligopoly

Correct AnswerverifiedShow Answer

An important distinction between a profit-maximising firm in a monopolistically competitive market differs and a firm in a perfectly competitive market is the firm in the monopolistically competitive market:

Correct AnswerverifiedShow Answer

A monopolistically competitive firm, unlike a perfectly competitive firm, could increase the quantity it produces and lower the:

Correct AnswerverifiedShow Answer

When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will:

Correct AnswerverifiedShow Answer

If a firm in a monopolistically competitive market uses advertising to decrease elasticity of demand for its product:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A monopolistically competitive firm chooses its production level the same way as a(n) :

Correct AnswerverifiedShow Answer

There is general disagreement among economists about the role of advertising, but there is widespread agreement about the effect of brand names on market efficiency.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run, a firm in a perfectly competitive market operates at:

Correct AnswerverifiedShow Answer

Advertising may impede competition by fostering brand loyalty and allowing firms to increase their mark-up.

Correct AnswerverifiedShow Answer

A recent outbreak of hepatitis was linked to a national fast-food restaurant chain. This is an example where:

Correct AnswerverifiedShow Answer

Suppose that in the short run, a monopolistically competitive firm sells its product for $40 per unit. Its average total cost at the optimal level of output is $30. This means that:

Correct AnswerverifiedShow Answer

How might a brand name ensure that customers buy high-quality goods?

Correct AnswerverifiedThere are two related arguments. Brand n...View AnswerShow Answer

When advertising is used to strengthen brand loyalty:

Correct AnswerverifiedShow Answer

In the long-run equilibrium in a monopolistic market, a profit-maximising firm's output is where marginal cost is less than marginal revenue.

Correct AnswerverifiedShow Answer

An important defence of advertising is that it is not rational for profit-maximising firms to spend money on advertising for products that:

Correct AnswerverifiedShow Answer

Correct Answer
verified
The arrival of a new entrant should be g...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
There are two related arguments. Brand n...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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