Question 1

One of the reasons that supermarkets advertise so much is that

Accepted Answer

A)   each hopes to create a natural monopoly.
B)   they are in a perfectly competitive industry, where advertising is the difference between economic and normal profits.
C)   they want to develop brand loyalty.
D)   they want to increase price elasticity of demand.

Question 2

Both monopolists and monopolistically competitive firms produce the quantity at which marginal revenue equals marginal cost, and then use the demand curve facing the firm to determine the price consistent with that quantity.

Accepted Answer

A) True 
 B)False

Question 3

Use a graph to demonstrate why a profit-maximising monopolistically competitive firm must operate at excess capacity. Explain why a perfectly competitive firm is not subject to the same constraint.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The graph shows the firm choosing a lev...

Question 4

When a monopolistically competitive firm raises its price,

Accepted Answer

A)   quantity demanded falls to zero.
B)   quantity demanded declines, but not to zero.
C)   the market supply curve shifts outward.
D)   quantity demanded remains constant. B

Question 5

-If the monopolistic competitor firm described by the graph above is producing at the profit-maximising (loss-minimising)  level of output, it

Accepted Answer

A)   is generating zero profits.
B)   is generating profits.
C)   could be generating either profits or losses depending on what quantity it chooses to produce.
D)   is generating losses. D

Question 6

The traditional view of monopolistic competition holds that this type of industrial structure is inefficient because

Accepted Answer

A)   there are too few firms to reach an efficient level of production.
B)   firms do not operate at the output that minimises average costs.
C)   advertising is not used extensively enough to yield an efficient differentiation of the products.
D)   consumers do not have enough choice among the product varieties available.

Question 7

In a small university town, four take away restaurants have opened in the last two years. Demonstrate the effect of the new market entrants on the demand for the existing take away restaurants that already serve this market. Assume that the local town council has now placed a ban on any new take away restaurants in the town. How will this affect the long run profitability of incumbent firms?

Accepted Answer

$$\text { Demand for incumbent takeaway restaurants }$$  The arrival of a new entrant should be graphically depicted by a leftward shift in the demand curves faced by all incumbent firms.
If firms are able to make economic profits, these will be able to be maintained in the long run if new entrants are not allowed (which would essentially be a barrier to entry, meaning the market would no longer be characterised as monopolistically competitive).

Question 8

In the short run, if the price is above average total cost in a monopolistically competitive market, the firm makes

Accepted Answer

A)   losses, and firms exit the market.
B)   profits, and firms exit the market.
C)   losses, and firms enter the market.
D)   profits, and firms enter the market.

Question 9

Perhaps it's not a problem at all, but if "too much choice" were a problem for consumers, it would occur in which market structure(s) ?

Accepted Answer

A)   Perfect competition.
B)   Monopoly.
C)   Monopolistic competition.
D)   Perfect competition and monopolistic competition.

Question 10

Even advertising that appears to contain little information about the product may be useful because it provides a signal about the quality of the product.

Accepted Answer

A) True 
 B)False

Question 11

In markets where the government imposes an excise tax on unit sales, it also has a tendency to dabble with restrictions on advertising (for example, cigarettes and hard liquor). Do potential (or actual) restrictions on advertising in these markets serve the interest of a government that is interested in maximising its tax revenue from the sale of these products? Explain your answer.

Accepted Answer

In the case of the examples given, deman...

Question 12

Because monopolistically competitive firms produce differentiated products, each firm

Accepted Answer

A)   faces a demand curve that is horizontal.
B)   faces a demand curve that is vertical.
C)   has no control over product price.
D)   has some control over product price.

Question 13

Monopolistic competition is a market structure in which few firms sell similar products.

Accepted Answer

A) True 
 B)False

Question 14

Firms that sell highly differentiated consumer products are more likely to spend a large percentage of their revenue on advertising.

Accepted Answer

A) True 
 B)False

Question 15

Critics of advertising argue that advertising decreases competition, while defenders of advertising argue that advertising increases competition and reduces prices to consumers.

Accepted Answer

A) True 
 B)False

Question 16

Defenders of the use of brand names argue that brand names

Accepted Answer

A)   All of these answers.
B)   are useful, even in socialist economies such as the former Soviet Union.
C)   provide information about the quality of the product.
D)   give firms incentive to maintain high quality.

Question 17

Which of the following products is least likely to be sold in a monopolistically competitive market?

Accepted Answer

A)   Breakfast cereal.
B)   Cotton.
C)   Video games.
D)   Beer.

Question 18

The use of the word "monopoly" in the name of the market structure called "monopolistic competition" refers to the fact that

Accepted Answer

A)   monopolistically competitive firms charge prices equal to their marginal costs, just like monopolists.
B)   a monopolistically competitive firm faces a downward sloping demand curve for its differentiated product, and so does a monopolist.
C)   monopolistically competitive markets have free entry and exit, just like a monopolistic market.
D)   monopolistically competitive firms produce beyond their efficient scale, and so do monopolists.

Question 19

In the long run, under monopolistic competition, when firms advertise,

Accepted Answer

A)   they will still earn zero economic profit.
B)   they can earn positive economic profit by increasing market share.
C)   the market price must fall.
D)   the market price must rise.

Question 20

Carmen's Café is a monopolistic competitor. If Carmen is currently producing at the output level where her average total cost is minimised and the café is earning economic profits, then in the long run output will

Accepted Answer

A)   decrease and average total cost will increase.
B)   decrease and average total cost will decrease.
C)   remain unchanged as Carmen's Café is doing the best it can.
D)   increase and average total costs will decrease.

Exam 15: Market Structures Ii: Monopolistic Competition

One of the reasons that supermarkets advertise so much is that

Correct Answer
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Both monopolists and monopolistically competitive firms produce the quantity at which marginal revenue equals marginal cost, and then use the demand curve facing the firm to determine the price consistent with that quantity.

Correct Answer
verified

Use a graph to demonstrate why a profit-maximising monopolistically competitive firm must operate at excess capacity. Explain why a perfectly competitive firm is not subject to the same constraint.

Correct Answer
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The graph shows the firm choosing a lev...
View Answer

When a monopolistically competitive firm raises its price,

Correct Answer
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B

-If the monopolistic competitor firm described by the graph above is producing at the profit-maximising (loss-minimising) level of output, it

Correct Answer
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D

The traditional view of monopolistic competition holds that this type of industrial structure is inefficient because

Correct Answer
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In the short run, if the price is above average total cost in a monopolistically competitive market, the firm makes

Correct Answer
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Perhaps it's not a problem at all, but if "too much choice" were a problem for consumers, it would occur in which market structure(s) ?

Correct Answer
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Even advertising that appears to contain little information about the product may be useful because it provides a signal about the quality of the product.

Correct Answer
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Correct Answer
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In the case of the examples given, deman...
View Answer

Because monopolistically competitive firms produce differentiated products, each firm

Correct Answer
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Monopolistic competition is a market structure in which few firms sell similar products.

Correct Answer
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Firms that sell highly differentiated consumer products are more likely to spend a large percentage of their revenue on advertising.

Correct Answer
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Critics of advertising argue that advertising decreases competition, while defenders of advertising argue that advertising increases competition and reduces prices to consumers.

Correct Answer
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Defenders of the use of brand names argue that brand names

Correct Answer
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Which of the following products is least likely to be sold in a monopolistically competitive market?

Correct Answer
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The use of the word "monopoly" in the name of the market structure called "monopolistic competition" refers to the fact that

Correct Answer
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In the long run, under monopolistic competition, when firms advertise,

Correct Answer
verified

Carmen's Café is a monopolistic competitor. If Carmen is currently producing at the output level where her average total cost is minimised and the café is earning economic profits, then in the long run output will

Correct Answer
verified

Exam 15: Market Structures Ii: Monopolistic Competition

One of the reasons that supermarkets advertise so much is that

Correct AnswerverifiedShow Answer

Both monopolists and monopolistically competitive firms produce the quantity at which marginal revenue equals marginal cost, and then use the demand curve facing the firm to determine the price consistent with that quantity.

Correct AnswerverifiedShow Answer

Use a graph to demonstrate why a profit-maximising monopolistically competitive firm must operate at excess capacity. Explain why a perfectly competitive firm is not subject to the same constraint.

Correct Answerverified The graph shows the firm choosing a lev...View AnswerShow Answer

When a monopolistically competitive firm raises its price,

Correct AnswerverifiedB

-If the monopolistic competitor firm described by the graph above is producing at the profit-maximising (loss-minimising) level of output, it

Correct AnswerverifiedD

The traditional view of monopolistic competition holds that this type of industrial structure is inefficient because

Correct AnswerverifiedShow Answer

In the short run, if the price is above average total cost in a monopolistically competitive market, the firm makes

Correct AnswerverifiedShow Answer

Perhaps it's not a problem at all, but if "too much choice" were a problem for consumers, it would occur in which market structure(s) ?

Correct AnswerverifiedShow Answer

Even advertising that appears to contain little information about the product may be useful because it provides a signal about the quality of the product.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIn the case of the examples given, deman...View AnswerShow Answer

Because monopolistically competitive firms produce differentiated products, each firm

Correct AnswerverifiedShow Answer

Monopolistic competition is a market structure in which few firms sell similar products.

Correct AnswerverifiedShow Answer

Firms that sell highly differentiated consumer products are more likely to spend a large percentage of their revenue on advertising.

Correct AnswerverifiedShow Answer

Critics of advertising argue that advertising decreases competition, while defenders of advertising argue that advertising increases competition and reduces prices to consumers.

Correct AnswerverifiedShow Answer

Defenders of the use of brand names argue that brand names

Correct AnswerverifiedShow Answer

Which of the following products is least likely to be sold in a monopolistically competitive market?

Correct AnswerverifiedShow Answer

The use of the word "monopoly" in the name of the market structure called "monopolistic competition" refers to the fact that

Correct AnswerverifiedShow Answer

In the long run, under monopolistic competition, when firms advertise,

Correct AnswerverifiedShow Answer

Carmen's Café is a monopolistic competitor. If Carmen is currently producing at the output level where her average total cost is minimised and the café is earning economic profits, then in the long run output will

Correct AnswerverifiedShow Answer

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B

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D

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In the case of the examples given, deman...
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