Question 1

A study of the market for optometrists' services in the 1960s showed that

Accepted Answer

A)   all states in the United States prohibited advertising by optometrists.
B)   almost all professional optometrists opposed legal restrictions on their rights to advertise.
C)   the average price of eyeglasses would decrease if the legal restrictions on advertising by optometrists were removed.
D)   advertising on eyeglasses limited competition among optometrists.E) None of the above
F) All of the above

Question 2

Table 16-2
The following table shows the total output produced by the top six firms as well as the total industry output for each industry.
 
-Refer to Table 16-2.What is the concentration ratio for Industry B?

Accepted Answer

A)   about 12%
B)   about 32%
C)   about 39%
D)   about 51%E) A) and D)
F) All of the above

Question 3

Professional organizations (for example,the American Medical Association and the American Bar Association)have been active advocates for regulation to restrict the right of professionals to advertise.Describe what economic incentives might exist for existing professionals to restrict advertising.

Accepted Answer

If advertising increases information abo...

Question 4

In markets where restrictions on advertising have been used to curtail competition,the U.S.courts have generally

Accepted Answer

A)   referred the matters of advertising restrictions to executive regulators.
B)   enforced industry-wide agreements to restrict advertising.
C)   been silent on the effect of explicit advertising restrictions.
D)   overturned laws that prohibit advertising.E) A) and C)
F) None of the above

Question 5

Edward Chamberlin argued that brand names

Accepted Answer

A)   hampered market efficiency.
B)   were instrumental in enhancing market efficiency.
C)   were useful in enhancing market efficiency when the government enforced the use of exclusive trademarks.
D)   were likely to be more socially efficient when used in conjunction with advertising.E) A) and D)
F) A) and C)

Question 6

In monopolistically competitive markets,free entry and exit suggests that

Accepted Answer

A)   the market structure will eventually be characterized by perfect competition in the long run.
B)   all firms earn zero economic profits in the long run.
C)   some firms will be able to earn economic profits in the long run.
D)   some firms will be forced to incur economic losses in the long run.E) None of the above
F) All of the above

Question 7

One way in which monopolistic competition differs from oligopoly is that

Accepted Answer

A)   there are no barriers to entry in oligopolies.
B)   in oligopoly markets there are only a few sellers.
C)   all firms in an oligopoly eventually earn zero economic profits.
D)   strategic interactions between firms are rare in oligopolies.E) B) and C)
F) None of the above

Question 8

Figure 16-1.The figure is drawn for a monopolistically competitive firm. 
-Refer to Figure 16-1.If the average total cost is $15 at the profit-maximizing quantity,then the firm's maximum profit is

Accepted Answer

A)   $18.
B)   $24.
C)   $36.
D)   $45.E) C) and D)
F) B) and D)

Question 9

Figure 16-1.The figure is drawn for a monopolistically competitive firm. 
-Refer to Figure 16-1.Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium.You would draw the ATC curve

Accepted Answer

A)   with its minimum at the point (Q = 12,P = $18) .
B)   with its minimum at the point (Q = 12,P = $12) .
C)   tangent to the demand curve at the point (Q = 12,P = $18) .
D)   tangent to the demand curve at the point (Q = 16,P = $16) .E) B) and D)
F) A) and B)

Question 10

How does advertising signal to consumers that the product is a good one?

Accepted Answer

A)   By seeing famous people using the product,consumers infer that they too can be famous.
B)   By being willing to spend money on advertising,firms let consumers know the product is likely a good one since firms would not likely advertise a poor product.
C)   By making consumers laugh during commercials,firms are associating positive experiences with the product.
D)   Without allowing consumers to actually use the product,it is not possible for firms to signal to consumers the product's quality.E) All of the above
F) B) and C)

Question 11

Entry of firms in a monopolistically competitive industry is characterized by two externalities.List them and briefly describe how consumers and existing firms are influenced by them.

Accepted Answer

Business-stealing effect: incumbent firm...

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.E) A) and B)
F) C) and D)

Question 13

For a monopolistically competitive firm,at the profit-maximizing quantity of output,

Accepted Answer

A)   price exceeds marginal cost.
B)   marginal revenue exceeds marginal cost.
C)   marginal cost exceeds average revenue.
D)   price equals marginal revenue.E) All of the above
F) B) and D)

Question 14

The relationship between advertising and product differentiation is

Accepted Answer

A)   positive;the more differentiated the product,the more a firm is likely to spend on advertising.
B)   negative;the more differentiated the product,the less a firm is likely to spend on advertising.
C)   zero;there is no relationship between product differentiation and advertising.
D)   irrelevant;firms with differentiated products do not need to advertise.E) A) and D)
F) B) and C)

Question 15

If advertising reduces a consumer's price sensitivity between identical goods,it is likely to

Accepted Answer

A)   increase the elasticity of demand for differentiated products.
B)   enhance competition and encourage more product diversity.
C)   reduce competition and reduce social welfare.
D)   encourage the consumption of all homogenous goods.E) None of the above
F) All of the above

Question 16

In a monopolistically competitive market,

Accepted Answer

A)   strategic interactions among the firms are very important.
B)   the threat of entry by new firms is not an important consideration.
C)   the attainment of a Nash equilibrium is an important objective.
D)   firms may enter even though they will earn zero economic profit in the long run.E) B) and C)
F) A) and B)

Question 17

Product differentiation causes the seller of a good to face what type of demand curve?

Accepted Answer

A)   downward sloping
B)   vertical
C)   horizontal
D)   Any of the above could be correct since product differentiation does not affect the shape of the demand curve.E) All of the above
F) A) and C)

Question 18

Which of the following statements is correct?

Accepted Answer

A)   Cigarettes are likely to be produced in a monopolistically competitive industry.
B)   Novels are likely to be produced in a monopoly industry.
C)   Movies are likely to be produced in a monopolistically competitive industry.
D)   Milk is likely to be produced in an oligopoly industry.E) B) and D)
F) A) and D)

Question 19

Figure 16-4 
-Refer to Figure 16-4.Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry?

Accepted Answer

A)   panel a
B)   panel b
C)   panel c
D)   panel dE) A) and D)
F) A) and B)

Question 20

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

Accepted Answer

A)   at its efficient scale,and a monopolistically competitive firm operates at efficient scale.
B)   at its efficient scale,and a monopolistically competitive firm operates with excess capacity.
C)   with excess capacity,and a monopolistically competitive firm operates with excess capacity.
D)   with excess capacity,and a monopolistically competitive firm operates at its efficient scale.E) None of the above
F) All of the above

Exam 16: Monopolistic Competition

A study of the market for optometrists' services in the 1960s showed that

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

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Figure 16-1.The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-1.Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium.You would draw the ATC curve

Correct AnswerverifiedShow Answer

In monopolistically competitive markets,free entry and exit suggests that

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The relationship between advertising and product differentiation is

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If advertising reduces a consumer's price sensitivity between identical goods,it is likely to

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Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. -Refer to Table 16-2.What is the concentration ratio for Industry B?

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Entry of firms in a monopolistically competitive industry is characterized by two externalities.List them and briefly describe how consumers and existing firms are influenced by them.

Correct AnswerverifiedBusiness-stealing effect: incumbent firm...View AnswerShow Answer

Figure 16-4 -Refer to Figure 16-4.Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry?

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Professional organizations (for example,the American Medical Association and the American Bar Association)have been active advocates for regulation to restrict the right of professionals to advertise.Describe what economic incentives might exist for existing professionals to restrict advertising.

Correct AnswerverifiedIf advertising increases information abo...View AnswerShow Answer

Edward Chamberlin argued that brand names

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In markets where restrictions on advertising have been used to curtail competition,the U.S.courts have generally

Correct AnswerverifiedShow Answer

How does advertising signal to consumers that the product is a good one?

Correct AnswerverifiedShow Answer

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

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Which of the following statements is correct?

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Product differentiation causes the seller of a good to face what type of demand curve?

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In a monopolistically competitive market,

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One way in which monopolistic competition differs from oligopoly is that

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Figure 16-1.The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-1.If the average total cost is $15 at the profit-maximizing quantity,then the firm's maximum profit is

Correct AnswerverifiedShow Answer

For a monopolistically competitive firm,at the profit-maximizing quantity of output,

Correct AnswerverifiedShow Answer

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Business-stealing effect: incumbent firm...
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If advertising increases information abo...
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