Question 1

Brand names are likely to ensure product quality:

Accepted Answer

A)   only in pure market-based economies
B)   only in mixed economies
C)   only in developed economies
D)   in a diverse set of economic structuresE) A) and D)
F) None of the above

Question 2

Suppose a new competitor enters a market and the incumbent firms lose customers and profits. This means that a:

Accepted Answer

A)   business-stealing externality has occurred
B)   product-variety externality has occurred
C)   predatory pricing externality has occurred
D)   consumption externality has occurredE) A) and B)
F) None of the above

Question 3

The efficient scale occurs when the firm's:

Accepted Answer

A)   average total cost curve must be falling
B)   average total cost curve must be rising
C)   average revenue must be equal to the minimum of average total cost
D)   average revenue must exceed the minimum of average total costE) B) and C)
F) None of the above

Question 4

A downward-sloping demand curve:

Accepted Answer

A)   is common to all monopolistically competitive firms
B)   is common to all monopoly firms
C)   causes price to exceed marginal revenue
D)   all of the above are trueE) B) and C)
F) C) and D)

Question 5

Advertising only benefits suppliers of a good and has little value to consumers.

Accepted Answer

A) True 
 B)False

Question 6

If the long-run price is equal to marginal cost, then the firm must be operating at efficient scale.

Accepted Answer

A) True 
 B)False

Question 7

Fill in the blanks. A monopolistically competitive firm, unlike a ________, could increase the quantity it produces and lower the ____________:

Accepted Answer

A)   perfectly competitive firm, average total cost
B)   monopoly firm, average total cost
C)   perfectly competitive firm, average fixed cost
D)   monopoly firm, average fixed costE) None of the above
F) All of the above

Question 8

In the long-run equilibrium, a difference between monopolistically competitive firms and perfectly competitive firms is:

Accepted Answer

A)   monopolistically competitive firms produce on the downward sloping section of their ATC curves, while perfectly competitive firms produce at the minimum of ATC
B)   monopolistically competitive firms set P=MC, while competitive firms set P=MR
C)   individual firm demand slopes down for monopolistically competitive firms, while market demand is horizontal for perfectly competitive markets
D)   average total cost is U-shaped for monopolistically competitive firms, while it is downward sloping for perfectly competitive firmsE) A) and D)
F) All of the above

Question 9

Brand names can improve product quality because firms will want to avoid the financial loss that would follow a fall in reputation. Firms will thus work harder to maintain high quality.

Accepted Answer

A) True 
 B)False

Question 10

As developing countries make the transition to market-based economies, one of the first major capital investments is in 'Western-quality' hotels. Explain why the establishment of brand-name hotel accommodation is a critical step in attracting foreign investment.

Accepted Answer

Brand-name hotels are a critic...

Question 11

From a total welfare perspective, it is possible that too many firms can enter into a monopolistically competitive market.

Accepted Answer

A) True 
 B)False

Question 12

When a firm in a monopolistically competitive market earns zero economic profit, its product price must equal marginal cost.

Accepted Answer

A) True 
 B)False

Question 13

The 'competition' in monopolistically competitive markets is most likely a result of:

Accepted Answer

A)   free entry and free exit
B)   product differentiation
C)   strategic interactions among sellers
D)   product homogeneityE) B) and C)
F) A) and C)

Question 14

When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that:

Accepted Answer

A)   the quality of products sold in the market always increases
B)   customers are less likely to be informed about other characteristics of the product
C)   each firm has less market power
D)   new firms are discouraged from entering the marketE) A) and B)
F) A) and C)

Question 15

The Pizza Hut in Agra, India has a very similar menu design, layout and content as the Pizza Hut in Bondi Junction, Sydney. This is an example of a brand name enhancing market efficiency for Australian tourists visiting India.

Accepted Answer

A) True 
 B)False

Question 16

If an economic justification for advertising is that it enhances the ability of a market to allocate resources, then advertising is probably:

Accepted Answer

A)   manipulating people's tastes
B)   increasing elasticity of supply
C)   conveying information about price, the existence of new products or locations of retail outlets
D)   addressing psychological rather than informational characteristics of the goodE) A) and D)
F) C) and D)

Question 17

Advertising during the Rugby World Cup is an example of providing information in the advertisement's content.

Accepted Answer

A) True 
 B)False

Question 18

The administrative burden of regulating price in a monopolistically competitive market is:

Accepted Answer

A)   large because there are a large number of firms that produce differentiated products
B)   small due to economies of scale
C)   large because price is usually below marginal cost
D)   small because firms produce at under-capacityE) C) and D)
F) A) and D)

Question 19

The profit-maximising rule for a firm in a monopolistically competitive market is to select the quantity at which:

Accepted Answer

A)   average revenue exceeds average total cost
B)   marginal revenue is equal to marginal cost
C)   average total cost is minimum
D)   demand is equal to supplyE) A) and B)
F) B) and C)

Question 20

The product-variety externality associated with monopolistic competition arises because in monopolistically competitive markets:

Accepted Answer

A)   entry and exit are not restricted
B)   firms produce at excess capacity
C)   firms try to differentiate their products
D)   firms produce homogeneous productsE) A) and D)
F) A) and C)

Exam 16: Monopolistic Competition

The 'competition' in monopolistically competitive markets is most likely a result of:

Correct AnswerverifiedShow Answer

Brand names can improve product quality because firms will want to avoid the financial loss that would follow a fall in reputation. Firms will thus work harder to maintain high quality.

Correct AnswerverifiedShow Answer

The product-variety externality associated with monopolistic competition arises because in monopolistically competitive markets:

Correct AnswerverifiedShow Answer

From a total welfare perspective, it is possible that too many firms can enter into a monopolistically competitive market.

Correct AnswerverifiedShow Answer

If an economic justification for advertising is that it enhances the ability of a market to allocate resources, then advertising is probably:

Correct AnswerverifiedShow Answer

A downward-sloping demand curve:

Correct AnswerverifiedShow Answer

Advertising during the Rugby World Cup is an example of providing information in the advertisement's content.

Correct AnswerverifiedShow Answer

The efficient scale occurs when the firm's:

Correct AnswerverifiedShow Answer

When a firm in a monopolistically competitive market earns zero economic profit, its product price must equal marginal cost.

Correct AnswerverifiedShow Answer

Advertising only benefits suppliers of a good and has little value to consumers.

Correct AnswerverifiedShow Answer

As developing countries make the transition to market-based economies, one of the first major capital investments is in 'Western-quality' hotels. Explain why the establishment of brand-name hotel accommodation is a critical step in attracting foreign investment.

Correct AnswerverifiedBrand-name hotels are a critic...View AnswerShow Answer

When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that:

Correct AnswerverifiedShow Answer

Fill in the blanks. A monopolistically competitive firm, unlike a ________, could increase the quantity it produces and lower the ____________:

Correct AnswerverifiedShow Answer

If the long-run price is equal to marginal cost, then the firm must be operating at efficient scale.

Correct AnswerverifiedShow Answer

In the long-run equilibrium, a difference between monopolistically competitive firms and perfectly competitive firms is:

Correct AnswerverifiedShow Answer

Brand names are likely to ensure product quality:

Correct AnswerverifiedShow Answer

The administrative burden of regulating price in a monopolistically competitive market is:

Correct AnswerverifiedShow Answer

Suppose a new competitor enters a market and the incumbent firms lose customers and profits. This means that a:

Correct AnswerverifiedShow Answer

The profit-maximising rule for a firm in a monopolistically competitive market is to select the quantity at which:

Correct AnswerverifiedShow Answer

The Pizza Hut in Agra, India has a very similar menu design, layout and content as the Pizza Hut in Bondi Junction, Sydney. This is an example of a brand name enhancing market efficiency for Australian tourists visiting India.

Correct AnswerverifiedShow Answer

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Brand-name hotels are a critic...
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Fill in the blanks. A monopolistically competitive firm, unlike a , could increase the quantity it produces and lower the ____:

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