Toàn bộ những gì bạn cần để qua môn kinh tế học, tài liệu này tập hợp những câu hỏi trắc nghiệm mới nhất của kinh tế vi mô năm 2018. Về nội dung tài liệu, với các khái niệm phổ biến và khái quát nhất về kinh tế vi mô cũng như những giải thích về các cơ chế hoạt động của nền kinh tế, bộ giáo trình bao gồm 23 phần cung cấp cho người đọc các kiến thức khá toàn diện và chuyên sâu về các nguyên lý kinh tế học như các lý thuyết cổ điển, các lý thuyết về phát triển: nền kinh tế trong dài hạn, các lý thuyết về vòng tròn kinh tế: nền kinh tế trong ngắn hạn, các yếu tố vi mô ẩn sau kinh tế vĩ mô, các tranh luận về chính sách vĩ mô… Tất cả đều được giải thích và đánh giá bởi một vị giáo sư kinh tế hàng đầu trên thế giới. Các khái niệm trong sách được định nghĩa rất rõ ràng, dễ nắm bắt, dễ hiểu, có tóm tắt các chương tạo điều kiện tốt nhất cho việc ôn tập
54 Chapter 16/Monopolistic Competition Chapter 16 Monopolistic Competition TRUE/FALSE The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market ANS: T DIF: REF: 16-1 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Interpretive The "monopoly" in monopolistically competitive markets is most likely a result of firms having some pricing power due to product differentiation ANS: T DIF: REF: 16-1 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Interpretive Monopolistic competition is characterized by many buyers and sellers, product differentiation, and free entry ANS: T DIF: REF: 16-1 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Definitional Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry ANS: F DIF: REF: 16-1 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Definitional A monopolistically competitive market is characterized by barriers to entry ANS: F DIF: REF: 16-1 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Interpretive Monopolistic competition is the only market structure that features many sellers ANS: F DIF: REF: 16-1 NAT: Analytic LOC: Monopolistic competition TOP: Markets MSC: Interpretive Product differentiation always leads to some measure of market power ANS: T DIF: REF: 16-1 NAT: LOC: Monopolistic competition TOP: Demand curve MSC: Interpretive Analytic Oligopoly is characterized by a few sellers offering similar products, whereas monopolistic competition is characterized by many sellers offering differentiated products ANS: T DIF: REF: 16-1 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Definitional Monopolistic competition is characterized by a few sellers offering similar products, whereas oligopoly is characterized by many sellers offering differentiated products ANS: F DIF: REF: 16-1 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Definitional 10 Oligopoly and monopolistic competition are examples of a market structure called imperfect competition ANS: T DIF: REF: 16-1 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Definitional 55 Chapter 16/Monopolistic Competition 11 Monopolistic competition and monopoly are examples of a market structure called imperfect competition ANS: F DIF: REF: 16-1 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Definitional 12 A markup of price over marginal cost is inconsistent with free entry and zero profit ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Profit maximization MSC: Interpretive 13 Monopolistically competitive firms, like monopoly firms, maximize their profits by charging a price that exceeds marginal cost ANS: T DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Profit maximization MSC: Interpretive 14 A profit-maximizing firm in a monopolistically competitive market charges a price equal to marginal cost ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Profit maximization MSC: Interpretive 15 A profit-maximizing firm in a monopolistically competitive market always operates on the downward-sloping portion of its marginal cost curve ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Profit maximization MSC: Analytical 16 For a profit-maximizing firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost ANS: T DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Profit maximization MSC: Analytical 17 A profit-maximizing firm in a monopolistically competitive market can earn positive, negative, or zero profits in the short run ANS: T DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Short-run equilibrium MSC: Interpretive 18 A firm in a monopolistically competitive market can earn both short-run and long-run profits ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Short-run equilibrium | Long-run equilibrium MSC: Interpretive 19 A firm in a monopolistically competitive market can earn short-run profits but not long-run profits ANS: T DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Short-run equilibrium | Long-run equilibrium MSC: Interpretive 20 In the long run, monopolistically competitive firms produce where demand equals marginal cost ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Long-run equilibrium MSC: Analytical 21 When a firm in a monopolistically competitive market earns zero economic profit, its product price must equal marginal cost ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Long-run equilibrium MSC: Interpretive Chapter 16/Monopolistic Competition 56 22 In the long run, monopolistically competitive firms produce where demand equals average total cost ANS: T DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Long-run equilibrium MSC: Analytical 23 In a monopolistically competitive market, the number of firms adjusts until economic profits are driven to zero ANS: T DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Long-run equilibrium MSC: Interpretive 24 When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium, marginal cost must lie below average total cost ANS: T DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Long-run equilibrium MSC: Analytical 25 In a monopolistically competitive market, the demand curves faced by incumbent firms are unaffected by the entry of new firms into the market ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Demand curve | Long-run equilibrium MSC: Interpretive 26 A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door, since a sale to that customer will not increase the firm's profit ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Profit maximization MSC: Interpretive 27 The term excess capacity refers to the fact that a firm operates on the upward-sloping portion of its averagetotal-cost curve ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Excess capacity MSC: Interpretive 28 The term excess capacity refers to the fact that a firm produces a lower quantity than it would if it operated at the efficient scale ANS: T DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Excess capacity MSC: Interpretive 29 Excess capacity characterizes firms in monopolistically competitive markets, even in situations of long-run equilibrium ANS: T DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Excess capacity MSC: Interpretive 30 When a firm operates with excess capacity, it must be in a monopolistically competitive market ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Excess capacity MSC: Interpretive 31 A firm that would experience higher average total cost by increasing production is operating with excess capacity ANS: F DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Excess capacity MSC: Interpretive 57 Chapter 16/Monopolistic Competition 32 When a firm operates at efficient scale, it is producing at the minimum point on its average total cost curve ANS: T DIF: REF: 16-2 NAT: Analytic LOC: Monopolistic competition TOP: Efficient scale MSC: Definitional 33 Defenders of advertising argue that firms use advertising as a signal of quality, even if the advertising delivers little helpful information about the product ANS: T DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Applicative 34 Critics of advertising argue that advertising leads to less elastic demand for products and a larger markup of price over marginal cost ANS: T DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 35 The claim that advertising reduces the elasticity of demand is likely to be made by a defender of advertising ANS: F DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 36 Critics of advertising argue that firms use advertising to manipulate consumers’ tastes ANS: T DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Applicative 37 When advertising is used to relay information about price, each firm is able to enhance market power ANS: F DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 38 Policymakers have generally come to accept the view that advertising enhances the efficiency of markets ANS: T DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 39 Economists are unanimous in their belief that advertising is socially inefficient ANS: F DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Definitional 40 When McDonald’s opens a store in Dhaka, Bangladesh, it has a strong incentive to enforce product quality consistent with stores in the United States ANS: T DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 41 The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York This is an example of a brand name enhancing market efficiency for U.S tourists visiting the Philippines ANS: T DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 42 Empirical evidence suggests that advertising usually leads to an increase in the price for advertised products ANS: F DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 43 Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality ANS: F DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 44 Advertising during the Super Bowl is an example of information about quality contained primarily in the existence and expense of the advertising ANS: T DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive Chapter 16/Monopolistic Competition 58 45 Brand names are rarely used to convey information about product quality ANS: F DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 46 The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy ANS: T DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 47 The debate over whether advertising serves a valuable purpose in society is definitively answered by economists who study the tastes and preferences of individuals ANS: F DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 48 If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be able to charge a larger markup over marginal cost ANS: T DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 49 There is general disagreement among economists about the role of advertising, but there is widespread agreement about the role of brand names on market efficiency ANS: F DIF: REF: 16-3 NAT: Analytic LOC: Monopolistic competition TOP: Advertising MSC: Interpretive 50 The government may not be able to improve the inefficiencies of a monopolistically competitive market ANS: T DIF: REF: 16-4 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Interpretive 51 Firms in monopolistically competitive markets and monopolies can earn long-run profits due to barriers to entry ANS: F DIF: REF: 16-4 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Interpretive 52 Free entry eliminates long-run profits for firms in competitive and monopolistic industries ANS: T DIF: REF: 16-4 NAT: Analytic LOC: Monopolistic competition TOP: Monopolistic competition MSC: Interpretive SHORT ANSWER List five goods that are likely sold in a monopolistically competitive market ANS: Books, CDs, movies, computer games, and piano lessons are some examples DIF: TOP: REF: 16-1 Monopolistic competition NAT: Analytic MSC: Interpretive LOC: Monopolistic competition Why does a typical monopolistically competitive firm face a downward-sloping demand curve? ANS: Because its product is different from those offered by other firms DIF: TOP: REF: Demand curve 16-1 NAT: Analytic MSC: Interpretive LOC: Monopolistic competition 59 Chapter 16/Monopolistic Competition In many college towns, private independent bookstores typically locate on the periphery of the college campus However, in some college towns, the university has used political power to restrict private bookstores near campus through community zoning laws Use your knowledge of markets to predict the price and quality of service differences in the market for college textbooks under the two different market regimes ANS: In monopoly markets, price will be higher and the quality of service will be lower than in monopolistically competitive markets DIF: TOP: REF: 16-1 Monopolistic competition NAT: Analytic MSC: Analytical LOC: Monopolistic competition Use a graph to demonstrate why a profit-maximizing monopolistically competitive firm must operate at excess capacity Explain why a perfectly competitive firm is not subject to the same constraint ANS: Competitive firms not face downward-sloping demand The graph shows the firm choosing a level of production in which the intersection of marginal revenue and marginal cost occurs at an output level where average total cost is decreasing This profit-maximizing output level is less than the efficient scale (minimum of average total cost), and therefore the firm is said to be operating with excess capacity DIF: TOP: REF: Excess capacity 16-2 MSC: NAT: Analytic Analytical LOC: Monopolistic competition Chapter 16/Monopolistic Competition 60 In a small college town, four microbreweries have opened in the last two years Demonstrate the effect of new market entrants on demand for existing firms (microbreweries) that already served this market Assume that the local community now places a moratorium on new liquor licenses for microbreweries How will this moratorium affect the long-run profitability of incumbent firms? ANS: 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 characterized as monopolistically competitive) DIF: TOP: REF: Long-run equilibrium 16-2 NAT: Analytic MSC: Analytical LOC: Monopolistic competition What is meant by the term "excess capacity" as it relates to monopolistically competitive firms? ANS: Monopolistically competitive firms produce a level of output lower than the efficient scale of output and are therefore said to have excess capacity DIF: TOP: REF: Excess capacity 16-2 MSC: NAT: Analytic Interpretive LOC: Monopolistic competition 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 ANS: Business-stealing effect: incumbent firms are affected through the loss of sales; consumers are affected by lower price Product-variety effect: incumbent firms face a market with more substitutes; consumers have more product variety from which to choose DIF: TOP: Externalities REF: 16-2 MSC: Interpretive NAT: Analytic LOC: Monopolistic competition 61 Chapter 16/Monopolistic Competition Evaluate the following statement in the context of business-stealing and product-variety externalities: "We have too many student apartments in this town already Statistics show that vacancy rates average 15 percent during any given semester." ANS: Business-stealing effect: if new entrants into the market can be profitable, then average vacancy rates are likely to rise above 15 percent Product-variety effect: if new entrants to the market are able to identify niche markets which are profitable (i.e., offer club rooms, pools, athletic facilities, etc.), then product variety will increase, and average vacancy rates are likely to rise above 15 percent DIF: TOP: Externalities REF: 16-2 MSC: Interpretive NAT: Analytic LOC: Monopolistic competition Assume the role of a critic of advertising Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society ANS: Advertising manipulates people's tastes and is psychological rather than informational As a result, advertising creates a desire for a product that might not otherwise exist Advertising may also impede competition by convincing consumers that products that are identical have significant differences DIF: TOP: 10 Advertising REF: 16-3 MSC: Interpretive NAT: Analytic LOC: Monopolistic competition Assume the role of a defender of advertising Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society ANS: Advertising provides information to consumers and thus allows consumers to make more informed (and therefore better) choices Advertising fosters competition by making consumers more aware of prices and product characteristics in a market DIF: TOP: 11 Advertising REF: 16-3 MSC: Interpretive NAT: Analytic LOC: Monopolistic competition Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and not enhance the efficient functioning of markets." ANS: Some people argue that celebrity endorsements are a signal of quality due to the high cost of the advertisement If so, then these advertisements relay information about product quality and enhance the effective functioning of markets DIF: TOP: 12 Advertising REF: 16-3 MSC: Interpretive NAT: Analytic LOC: Monopolistic competition 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 ANS: If advertising increases information about prices and services, then providers of professional services will be required to compete with each other on the basis of price and service As such, existing professionals will be subject to more competitive pressure in the markets they service, and individual profits are likely to fall DIF: TOP: Advertising REF: 16-3 MSC: Analytical NAT: Analytic LOC: Monopolistic competition 13 Discuss how brand names may enhance the efficiency of markets in a less developed country ANS: Recognizable brand names signal quality products In the tourist- and business-services market, this signal can be critical at the early stages of development to ensure visitors have a quality experience when other information is unavailable or unreliable DIF: TOP: Advertising REF: 16-3 MSC: Interpretive NAT: Analytic LOC: Monopolistic competition Chapter 16/Monopolistic Competition 62 14 As developing countries make a transition to market-based economies, one of the first major capital investments is in "Western-quality" hotels Explain why brand-name hotel accommodations are a critical step in attracting foreign investment ANS: Brand-name hotels are a critical first step to economic development because their recognized signal of quality reduces the barriers of facilitating foreign visitors (and their money) DIF: TOP: 15 Advertising REF: 16-3 MSC: Analytical NAT: Analytic LOC: Monopolistic competition 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 maximizing its tax revenue from the sale of these products? Explain your answer ANS: In the case of the examples given, demand is quite inelastic, so restrictions on advertising are not likely to have a large impact on total sales but may have an impact on the distribution of sales across brand names As such, government revenue is largely unaffected if the tax is on unit sales DIF: TOP: Advertising REF: 16-3 MSC: Analytical NAT: Analytic LOC: Monopolistic competition Sec 00 - Monopolistic Competition MULTIPLE CHOICE Which of the following is a characteristic of monopolistic competition? a b c d ownership of a key resource by a single firm free entry identical product patents ANS: B DIF: LOC: Monopolistic competition MSC: Definitional 16-0 NAT: Analytic Monopolistic competition REF: TOP: 16-0 NAT: Analytic Monopolistic competition The market for novels is a b c d perfectly competitive a monopoly monopolistically competitive an oligopoly ANS: C DIF: LOC: Monopolistic competition MSC: Applicative REF: TOP: Which of the following statements is not correct? a b c d Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers ANS: C DIF: LOC: Monopolistic competition MSC: Analytical REF: TOP: 16-0 NAT: Analytic Monopolistic competition 63 Chapter 16/Monopolistic Competition Which of the following statements is not correct? a b c d Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly Both monopolistic competition and perfect competition are characterized by product differentiation ANS: D DIF: LOC: Monopolistic competition MSC: Analytical 16-0 NAT: Analytic Monopolistic competition REF: TOP: 16-0 NAT: Analytic Monopolistic competition Monopolistic competition is a type of a b c d oligopoly market structure price discrimination advertising strategy ANS: B DIF: LOC: Monopolistic competition MSC: Definitional REF: TOP: A monopolistically competitive market has characteristics that are similar to a b c d a monopoly only a competitive firm only both a monopoly and a competitive firm neither a monopoly nor a competitive firm ANS: C DIF: LOC: Monopolistic competition MSC: Applicative REF: TOP: 16-0 NAT: Analytic Monopolistic competition Sec01 - Monopolistic Competition - Between Monopoly and Perfect Competition MULTIPLE CHOICE A typical firm in the U S economy would be classified as a b c d perfectly competitive imperfectly competitive a duopolist an oligopolist ANS: B DIF: LOC: Monopolistic competition MSC: Interpretive 16-1 NAT: Analytic Imperfect competition The typical firm in the U S economy a b c d has some degree of market power sells its product for a price that is equal to the marginal cost of producing the last unit is perfectly competitive is a monopoly ANS: A DIF: LOC: Monopolistic competition MSC: Interpretive REF: TOP: REF: TOP: 16-1 NAT: Analytic Imperfect competition Which of the following pairs illustrates the two extreme examples of market structures? a b c d competition and oligopoly competition and monopoly monopoly and monopolistic competition oligopoly and monopolistic competition Chapter 16/Monopolistic Competition 116 15 Advertising a b c d provides information about products, including prices and seller locations has been proven to increase competition and reduce prices compared to markets without advertising signals quality to consumers, because advertising is expensive All of the above are correct ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 16 Which of the following is not an argument made by critics of advertising? a b c d Advertising manipulates people’s tastes Advertising impedes competition Advertising promotes economies of scale Advertising increases the perception of product differentiation ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Applicative 17 Critics of advertising argue that in some markets advertising may a b c d attract products of lower quality into the market attract less informed buyers into the market decrease elasticity of demand allowing firms to charge a larger markup over marginal cost enhance competition in markets to an unnecessary degree ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 16-3 Advertising NAT: Analytic MSC: Interpretive 18 Critics of advertising argue that advertising a b c d creates desires that otherwise might not exist hinders competition often fails to convey substantive information All of the above are correct ANS: D DIF: LOC: Monopolistic competition REF: TOP: 19 Critics of advertising argue that advertising a b c d creates desires that otherwise might not exist enhances competition benefits television viewers who enjoy tv commercials All of the above are correct ANS: A DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 20 If advertising reduces a consumer's price sensitivity between identical goods, it is likely to a b c d increase the elasticity of demand for differentiated products enhance competition and encourage more product diversity reduce competition and reduce social welfare encourage the consumption of all homogenous goods ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 21 If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will a b c d be able to increase its markup over marginal cost eventually have to lower price to remain competitive increase the welfare of society reduce its average total cost ANS: A DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 117 Chapter 16/Monopolistic Competition 22 Critics of advertising argue that advertising a b c d creates demand for products that people otherwise not want or need lowers barriers to entry into an industry because new firms can more easily establish themselves as competitors increases competition by providing information about prices encourages monopolization of markets by raising entry barriers ANS: A DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 23 Which of the following is a commonly-cited benefit of advertising? a b c d Advertising can be a signal of the quality of a product Advertising impedes competition Advertising reduces the deadweight loss associated with monopolistic competition Advertising encourages free entry, which increases profits ANS: A DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Applicative 24 Defenders of advertising a b c d concede that advertising increases firms’ market power concede that advertising makes entry by new firms more difficult contend that firms use advertising to provide useful information to consumers All of the above are correct ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 25 When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that a b c d the quality of products sold in the market always increases customers are less likely to be informed about other characteristics of the product new firms are discouraged from entering the market each firm has less market power ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 26 Defenders of advertising argue that it is not rational for profit-maximizing firms to spend money on advertising for products that have a b c d superior quality inferior or mediocre quality low prices limited availability ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 27 The primary claim of defenders of advertising is that it a b c d conveys information about firm profitability is psychological rather than informational enhances the information available to consumers reduces the elasticity of demand for a firm’s product ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 28 In his 1958 book, The Affluent Society, John Kenneth Galbraith argued that a b c d brand names give firms an incentive to produce and sell high-quality products consumers’ tastes cannot, in any real sense, be “determined” by advertising firms use advertising to create demand for products that people otherwise not want or need firms use advertising to send a signal to consumers about the quality of their products ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive Chapter 16/Monopolistic Competition 118 29 Evidence suggests that, in markets with differentiated products but little advertising, a b c d consumers are not confused by conflicting signals firms are generally less profitable markets are less efficient consumers make better choices ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 30 In markets where restrictions on advertising have been used to curtail competition, the U.S courts have generally a b c d referred the matters of advertising restrictions to executive regulators enforced industry-wide agreements to restrict advertising been silent on the effect of explicit advertising restrictions overturned laws that prohibit advertising ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 31 A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to a b c d a decrease in profits for all hotels/motels reduced efficiency of local lodging markets a request by consumers to increase the number of billboards increased price competition among hotels/motels in the community ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 32 Among arguments for and against advertising, both sides agree that advertising leads to a b c d higher prices and less competitive markets higher prices and more competitive markets lower prices and more competitive markets None of the above is correct The debate fails to resolve the question of advertising's effect on prices and competition ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 33 Professional organizations and producer groups have an incentive to a b c d restrict advertising in order to enhance competition on the basis of price restrict advertising in order to reduce competition on the basis of price encourage advertising in order to reduce competition on the basis of price encourage advertising in order to enhance competition on the basis of price ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 34 Evidence from the market for eyeglasses suggests that advertising leads to a b c d lower-quality products for consumers lower prices for consumers higher prices for consumers less concern on the part of consumers about price differences among similar goods ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 35 In the study done by Lee Benham on advertising for eyeglasses, a b c d advertising increased the average price advertising decreased the average price there was no difference in price, but quality was better in the states that didn't allow advertising advertising appeared to have no effect whatsoever in the states that permitted advertising ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Applicative 119 Chapter 16/Monopolistic Competition 36 Results of the study done by Lee Benham on advertising for eyeglasses would suggest that a b c d brand loyalty and market power in the eyeglass market was likely to be more pervasive in states that allowed advertising eyeglass sales were more profitable in states that allowed advertising optometrists would not be supportive of advertising restrictions optometrists would enthusiastically endorse advertising restrictions ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Applicative 37 A study of the market for optometrists' services in the 1960s showed that a b c d all states in the United States prohibited advertising by optometrists almost all professional optometrists opposed legal restrictions on their rights to advertise the average price of eyeglasses would decrease if the legal restrictions on advertising by optometrists were removed advertising on eyeglasses limited competition among optometrists ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 38 According to one theory, advertising sends a signal to consumers about the quality of the product being offered An implication of this theory is that a b c d the actual quality of the product is irrelevant the content of the advertisement is irrelevant advertising is not in the best interest of society it is irrational for firms to pay famous people large amounts of money to appear in their advertisements ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 39 Advertising that uses celebrity endorsements is most likely intended to a b c d increase elasticity of demand for the advertised product reduce the ability of markets to allocate resources efficiently provide a signal of product quality be useful only for psychological effects ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 40 Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with a b c d information about the availability of the product information about product price a signal of product quality a good example of wasted resources ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 41 One theory of advertising suggests that a b c d information on price is important to make advertising effective the content of advertising may be irrelevant to product success in the market celebrity advertising is not effective in retail food markets Post and Kellogg should not advertise new cereals ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 42 Advertisements that appear to convey no information at all a b c d are usually associated with "infomercials." are useless to consumers but valuable to firms are useless to firms but valuable to consumers for their entertainment quality alone may convey information to consumers by providing them with a signal that firms are willing to spend significant amounts of money to advertise Chapter 16/Monopolistic Competition 120 ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 43 Television advertisements aired during major sporting events are very expensive A theory asserting that people buy a product simply because it is advertised would suggest that information on the high cost of advertising a b c d enhances the effectiveness of the advertisement reduces people's willingness to purchase advertised products is leaked to discredit the firms that spend so much on advertising reduces the effective staying power of a product ANS: A DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 44 According to the signaling theory of advertising, consumers a b c d pay little or no attention to which firms advertise and which firms not advertise are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement are often more impressed by low-cost advertisements than they are by high-cost advertisements gain little or no information about product quality from advertisements ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 45 ABC Company knows that it produces and sells a very good mouse trap XYZ Company knows that it produces and sells a lousy mouse trap According to the signaling theory of advertising, a b c d both ABC and XYZ have incentives to spend large amounts of money on advertising their mouse traps ABC has an incentive to spend a large amount of money on advertising its mouse trap, but XYZ does not XYZ has an incentive to spend a large amount of money on advertising its mouse trap, but ABC does not neither ABC nor XYZ has an incentive to spend a large amount of money on advertising their mouse traps ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Analytical 46 How does advertising signal to consumers that the product is a good one? a b c d By seeing famous people using the product, consumers infer that they too can be famous 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 By making consumers laugh during commercials, firms are associating positive experiences with the product Without allowing consumers to actually use the product, it is not possible for firms to signal to consumers the product's quality ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 47 Most businesses advertise their products and services Some business use SPAM emails to advertise because the cost of a mass e-mail is close to zero Other business spend millions of dollars to advertise in a 30-second spot during the Super Bowl Having observed this real world data, economists argue that the amount of money that a business spends on advertising is a proxy for a good or service's a b c d size quality newness cost of production ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 121 Chapter 16/Monopolistic Competition 48 Critics of markets that are characterized by firms that sell brand name products argue that brand names encourage consumers to pay more for branded products that a b c d have elastic demand curves are very different from generic products are indistinguishable from generic products consumer-advocate groups have found to be inferior ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 49 Edward Chamberlin argued that brand names a b c d hampered market efficiency were instrumental in enhancing market efficiency were useful in enhancing market efficiency when the government enforced the use of exclusive trademarks were likely to be more socially efficient when used in conjunction with advertising ANS: A DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 50 Edward Chamberlin argued that governments should a b c d ban the use of brand names not enforce the trademarks that companies use to identify their products vigorously enforce the trademarks that companies use to identify their products tax companies whose products have brand names in proportion to how much consumers recognize their products ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 51 The debate over the efficiency of markets in which products with brand names are sold a b c d is framed by the role of regulation in advertising is likely to be resolved by reference to anecdotal evidence hinges on whether consumers are rational in their choices hinges on the effectiveness of advertising that identifies price differences ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 52 A recent outbreak of hepatitis was linked to a national fast-food restaurant chain This is an example of a case in which a b c d brand name identity increases the effectiveness of markets brand name identity can be detrimental to the profitability of a firm advertising is ineffective in salvaging perceptions of product quality advertising cannot be used to establish brand loyalty ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Analytical 53 In some countries, brand name fast-food restaurants are not allowed to operate Such restrictions are likely to a b c d enhance the social welfare of society increase the number of fast-food restaurants reduce barriers to entry in imperfect markets reduce the competitive nature of local fast-food markets ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive Chapter 16/Monopolistic Competition 122 54 Eunice consumes Coke exclusively She claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in her mouth However, in a blind taste test, Eunice is found to prefer generic store-brand cola to Coke eight out of ten times The results of Eunice's taste test would reinforce claims by critics of brand names that a b c d consumers are always willing to pay more for brand names brand names cause consumers to perceive differences that not really exist brand names cause consumers to be more sensitive to product differences brand names are a form of socially efficient advertising ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 55 Kirk consumes Pepsi exclusively He claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in his mouth In a blind taste test, Kirk is found to prefer Pepsi to store-brand cola eight out of ten times The results of Kirk’s taste test would refute claims by critics of brand names that a b c d consumers are always willing to pay more for brand names brand names cause consumers to perceive differences that not really exist consumers with the lowest levels of income are the most likely to be influenced by brand name advertising brand names are a form of socially efficient advertising ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 56 Your company has recently requested that you travel to Dhaka, Bangladesh, to work on negotiations for a new factory to be located in one of the port cities Your travel agent provides a list of several hundred local hotels and a Sheraton In this case, the Sheraton brand-name is likely to be used as a signal of a b c d perceived differences that are not likely to exist among your various options quality when quality cannot be easily judged inefficiency in markets characterized by recognizable brand names the quality of general lodging accommodations in Dhaka ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 57 On a vacation to Cancun, Mexico, you find yourself eating every meal at the local McDonald's rather than having a hamburger from one of the street vendors Your traveling companion claims that you are irrational, since you never eat McDonald's hamburgers when you are home, and McDonald's hamburgers cost more than those prepared and sold by Cancun's street vendors An economist would most likely explain your behavior by suggesting that a b c d your behavior is rational, but your friend's behavior is clearly irrational you are clearly irrational, but your friend’s behavior is rational the McDonald's brand name suggests consistent quality the advertising by McDonald’s in Cancun is more persuasive than the advertising by McDonald’s in your home town ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 58 Two college students, Josh and John, are spending spring break in Boston to visit Harvard University’s law school Josh buys a cup of coffee each morning at the local Dunkin’ Donuts rather than from one of the local coffee shops John claims that Josh is irrational because he never purchased Dunkin’ Donuts’ coffee at home, and Dunkin’ Donuts’ coffee costs more than the coffee sold by local shops An economist would most likely explain Josh’s behavior by suggesting that a b c d Josh’s behavior is rational, but John's behavior is clearly irrational Josh’s behavior is clearly irrational, but John’s behavior is rational the Dunkin’ Donuts brand name suggests consistent quality the advertising by Dunkin’ Donuts in Boston is more persuasive than the advertising by Dunkin’ Donuts in Josh and John’s home town 123 Chapter 16/Monopolistic Competition ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 59 Two soft drinks sit side-by-side in a grocery store: A six-pack of Coca-Cola (a brand name) sells for $3.00, while a six-pack of Uncle Don's cola (not a brand name) sells for $1.50 Even defenders of brand names would have to admit that a b c d no rational consumer would spend twice as much for Coca-Cola as he would for Uncle Don's cola the side-by-side presence of these two colas conveys no useful information to consumers Coca-Cola has no incentive to maintain the quality of its product just because of the Coca-Cola brand name None of the above is correct ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 60 Two soft drinks sit side-by-side in a grocery store: A six-pack of Coca-Cola (a brand name) sells for $3.00, while a six-pack of Uncle Don's cola (not a brand name) sells for $1.50 In a typical day the store sells some of each type of cola, which suggests that a b c d no rational consumer would spend twice as much for Coca-Cola as he would for Uncle Don's cola some consumers must perceive that Coca-Cola is a higher quality product Coca-Cola has no incentive to maintain the quality of its product just because of the Coca-Cola brand name None of the above is correct ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 61 Which of the following statements regarding brand names in advertising is not correct? a b c d Brand names provide consumers with information about quality when quality cannot be easily judged in advance of purchase Brand names give firms an incentive to maintain high quality to maintain the reputation of the firm Brand names allow firms to produce and sell inferior products in the long run since people will continue to purchase the brand-name product Brand names can cause consumers to perceive differences in products that not actually exist ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Definitional 62 When quality cannot be easily judged in advance, what provides consumers with information about the quality of a product? a b c d a brand name a tie-in the quantity available for sale the amount of deadweight loss ANS: A DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 63 When monopolistically competitive firms advertise, in the long run a b c d they will still earn zero economic profit they can earn positive economic profit by increasing market share the market price must fall the market price must rise ANS: A DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive Chapter 16/Monopolistic Competition 124 64 Which of the following statements is not correct? a b c d The typical monopolistically competitive firm could reduce its average total cost if it produced more output Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face Expensive advertising might help consumers if it is a signal that the product is good Brand names acquired at great cost might help consumers by assuring quality ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 65 Which of the following statements is correct? a b c d The more similar Firm A’s product is to Firm B’s product, the more likely Firm A is to advertise Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face According to the signaling theory, the more product information an advertisement contains, the more effective it is Brand names may help consumers if they provide information about the quality of a product when acquiring such information is difficult ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 66 Which of the following statements is not correct? a b c d Critics of advertising argue that firms advertise to manipulate consumers’ tastes Defenders of advertising argue that advertising provides valuable product information to consumers An industry with many brand name products will be more competitive than one with many generic products The willingness of a firm to spend a large amount of money on advertising can signal the quality of the product ANS: C DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive Scenario 16-3 Consider the problem facing two firms, Firm A and Firm B, in the fast-food restaurant market Each firm has just come up with an idea for a new fast-food menu item which it would sell for $4 Assume that the marginal cost for each new menu item is a constant $2, and the only fixed cost is for advertising Each company knows that if it spends $12 million on advertising it will get million consumers to try its new product Firm A has done market research which suggests that its product does not have any "staying" power in the market Even though it could get million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future Firm B's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year On the basis of its market research, Firm B estimates that its initial million customers will buy one unit of the product each month in the coming year, for a total of 24 million units 67 Refer to Scenario 16-3 If Firm A decides to advertise its product it can expect to a b c d incur a loss of $8 million incur a loss of $4 million earn a profit of $4 million earn a profit of $8 million ANS: A DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Applicative 68 Refer to Scenario 16-3 If firm B decides to advertise its product it can expect to a b c d earn a profit of $48 million per year earn a profit of $36 million per year earn a profit of $12 million per year incur a loss of $12 million per year ANS: B DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Applicative 125 Chapter 16/Monopolistic Competition 69 Refer to Scenario 16-3 By its willingness to spend money on advertising, Firm B a b c d signals the quality of its new product to consumers signals that it is not a profit maximizer is detracting from the efficiency of markets will drive Firm A out of the market ANS: A DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 70 Refer to Scenario 16-3 On the basis of a theory that people buy a product because it is advertised, the content of advertisements for Firm B's product a b c d should focus on quality comparisons in order to be successful must include celebrity endorsements in order to be successful is critical to the success of the product in the market is irrelevant to the success of the advertisement ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive 71 Refer to Scenario 16-3 Which of the following is most likely? a b c d Both Firm A and Firm B will advertise Neither Firm A nor Firm B will advertise Firm A will advertise, but Firm B will not advertise Firm B will advertise, but Firm A will not advertise ANS: D DIF: LOC: Monopolistic competition REF: TOP: 16-3 Advertising NAT: Analytic MSC: Interpretive Sec 04 - Monopolistic Competition - Conclusion MULTIPLE CHOICE Firms in a monopolistically competitive market a b c d are price takers produce an output level that minimizes average total cost in the long run maximize profits by producing where price equals marginal cost cannot earn economic profits in the long run ANS: D DIF: LOC: Monopolistic competition MSC: Interpretive 16-4 NAT: Long-run equilibrium Analytic Which of the following statements is correct? a b c d Firms in monopolistic competition and monopoly can earn economic profits in both the short run and the long run Both perfectly competitive and monopolistically competitive firms charge a price equal to marginal cost Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost Both perfectly competitive and monopolistically competitive firms produce the welfare-maximizing level of output ANS: C DIF: LOC: Monopolistic competition MSC: Analytical REF: TOP: REF: TOP: 16-4 NAT: Profit maximization Analytic Which of the following statements is correct? a b c d Firms in monopolistic competition and monopoly can earn economic profits in both the short run and the long run Both perfectly competitive and monopolistically competitive firms are price takers Both a monopolistically competitive industry and a monopoly are characterized by a very small number (or one) firm Firms can easily enter a perfectly competitive or monopolistically competitive industry Chapter 16/Monopolistic Competition 126 ANS: D DIF: LOC: Monopolistic competition MSC: Analytical b c d c d 16-4 NAT: Profit maximization Analytic Firms in monopolistic competition and monopoly can earn economic profits in the short run Firms in monopolistic competition and perfect competition produce the welfare-maximizing level of output Monopolistically competitive firms price above marginal cost, whereas competitive firms price at marginal cost Firms wishing to enter a monopolistically competitive market can so freely, whereas firms wishing to enter a monopoly market will face barriers ANS: B DIF: LOC: Monopolistic competition MSC: Analytical REF: TOP: 16-4 NAT: Analytic Monopolistic competition A market is comprised of many firms as opposed to just one firm or a few firms a b c d only when it is perfectly competitive only when it is perfectly competitive or oligopolistic only when it is perfectly competitive or monopolistically competitive when it is perfectly competitive, monopolistically competitive, or oligopolistic ANS: C DIF: LOC: Monopolistic competition MSC: Definitional REF: TOP: 16-4 NAT: Analytic Perfect competition | Monopolistic competition A firm is a price taker a b c d only when the market is perfectly competitive only when the market is perfectly competitive or monopolistic only when the market is perfectly competitive or monopolistically competitive when the market is perfectly competitive, monopolistically competitive, or monopolistic ANS: A DIF: LOC: Monopolistic competition MSC: Interpretive REF: TOP: Which of the following statements is not correct? a b Analytic Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run Both monopolies and monopolistically competitive firms can earn economic profits in the long run Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost Only competitive firms produce the welfare-maximizing level of output ANS: B DIF: LOC: Monopolistic competition MSC: Analytical 16-4 NAT: Profit maximization Which of the following statements is not correct? a REF: TOP: REF: TOP: 16-4 NAT: Analytic Perfect competition | Monopolistic competition A firm maximizes its profit by producing output up to the point where marginal revenue equals marginal cost a b c d ANS: LOC: TOP: MSC: only when the market is a monopoly only when the market is a monopoly or monopolistically competitive only when the market is monopolistically competitive or perfectly competitive when the market is perfectly competitive, monopolistically competitive, or monopolistic D DIF: REF: 16-4 Monopolistic competition Perfect competition | Monopolistic competition | Monopoly Interpretive NAT: Analytic 127 Chapter 16/Monopolistic Competition A firm produces the welfare-maximizing level of output a b c d ANS: LOC: TOP: MSC: only when the market is perfectly competitive only when the market is a monopoly or monopolistically competitive only when the market is monopolistically competitive or perfectly competitive when the market is perfectly competitive, monopolistically competitive, or monopolistic A DIF: REF: 16-4 Monopolistic competition Perfect competition | Monopolistic competition | Monopoly Interpretive NAT: Analytic 10 A monopolistically competitive market is like a monopoly in that a b c d both market structures feature easy entry by new firms in the long run the main objective of firms in both market structures is something other than profit maximization firms in both market structures produce the welfare-maximizing level of output firms in both market structures set price above marginal cost ANS: D DIF: LOC: Monopolistic competition MSC: Interpretive REF: TOP: 16-4 NAT: Analytic Monopolistic competition | Monopoly 11 A monopolistically competitive market is like a competitive market in that a b c d both market structures feature easy entry by new firms in the long run the main objective of firms in both market structures is something other than profit maximization firms in both market structures produce the welfare-maximizing level of output firms in both market structures set price above marginal cost ANS: A DIF: LOC: Monopolistic competition MSC: Interpretive REF: TOP: 16-4 NAT: Analytic Monopolistic competition | Monopoly 12 A monopolistically competitive market is like both a competitive market and a monopoly in that a b c d all three market structures feature easy entry by new firms in the long run firms in all three market structures maximize profit by producing an output level where marginal revenue equals marginal cost firms in all three market structures produce the welfare-maximizing level of output All of the above are correct ANS: B DIF: LOC: Monopolistic competition MSC: Interpretive REF: TOP: 16-4 NAT: Analytic Monopolistic competition | Monopoly 13 A monopolistically competitive market is like both a competitive market and a monopoly in that firms in all three market structures a b c d can earn economic profits in the short run can earn economic profits in the long run charge a price above marginal cost All of the above are correct ANS: A DIF: LOC: Monopolistic competition MSC: Interpretive REF: TOP: 16-4 NAT: Analytic Monopolistic competition | Monopoly ... fixed costs of $20 and a constant marginal cost of $5 per unit The firm will maximize profit with the production of a b c d units of output units of output 10 units of output 12 units of output... worse off as a result of this policy? a b c d Traci’s would be better off; consumers would be worse off Consumers would be better off; Traci’s would be worse off No one would be better off; consumers... about prices and services, then providers of professional services will be required to compete with each other on the basis of price and service As such, existing professionals will be subject to