Question 1

Graph 17-3
  Lines in these figures reflect the potential effect of entry and exit in a monopolistically competitive market on the demand and/or marginal cost curves of incumbent firms.
-Refer to the graphs in 17-3. Which panel is consistent with a celebrity announcing her endorsement of a specific brand's product?

Accepted Answer

A)   panel a
B)   panel b
C)   panel c
D)   panel d

Question 2

Monopolistically competitive markets have two main sources of inefficiency: mark-up over marginal cost, and externalities associated with entry of new firms. Explain how these inefficiencies can have an impact on total welfare

Accepted Answer

Mark-up over marginal cost means that so...

Question 3

For profit-maximising firms in a monopolistically competitive market, another customer means:

Accepted Answer

A)   potential economic losses
B)   marginal cost could potentially exceed price
C)   more profit
D)   zero economic profit

Question 4

The business stealing externality arises because firms post a price above marginal cost and are therefore always eager to sell additional units.

Accepted Answer

A) True 
 B)False

Question 5

Advertising can be used as a signal of product quality, even if the advertisement contains little information about the product.

Accepted Answer

A) True 
 B)False

Question 6

When a profit-maximising firm in a monopolistically competitive market charges a price higher than marginal cost, the:

Accepted Answer

A)   burden of the deadweight loss falls entirely on consumers
B)   burden of the deadweight loss falls entirely on producers
C)   deadweight loss is dissipated by the excess capacity
D)   market experiences a deadweight loss

Question 7

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

Accepted Answer

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

Question 8

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

Accepted Answer

A)   are superior quality
B)   have low prices
C)   have high prices
D)   are inferior quality

Question 9

What is the similarity between a long-run equilibrium in a monopolistically competitive market with a monopoly? What is the difference?

Accepted Answer

The similarity is that in both markets, ...

Question 10

In many university towns, private independent bookstores typically locate on the periphery of the campus. However, in some university towns, the university has used political power to restrict private bookstores near the campus through community zoning laws. Use your knowledge of markets to predict the price and quality of service difference in the market for university textbooks under these two different market regimes.

Accepted Answer

In monopoly markets, price wil...

Question 11

If the principal effect of advertising is to decrease the elasticity of demand, the critics argue that firms will be able to:

Accepted Answer

A)   lower their advertising budget
B)   charge a lower mark-up over marginal cost
C)   increase their advertising budget
D)   charge a larger mark-up over marginal cost

Question 12

Fill in the blanks. The deadweight loss that is associated with a ___________ market is a result of ___________.

Accepted Answer

A)   monopoly, pricing above marginal cost
B)   monopoly and monopolistically competitive, pricing above marginal cost
C)   monopoly, operating at inefficient scale
D)   monopoly and monopolistically competitive, operating at inefficient scale

Question 13

The use of celebrity endorsements in advertising has enabled firms to differentiate their products.

Accepted Answer

A) True 
 B)False

Question 14

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals product quality.

Accepted Answer

A) True 
 B)False

Question 15

What is meant by the term 'excess capacity' as it relates to monopolistically competitive firms?

Accepted Answer

In the long run, monopolistica...

Question 16

What is the main point of difference between a monopolistically competitive market and an oligopoly?

Accepted Answer

A)   the oligopolist has downward-sloping demand curve
B)   the oligopolist produces where marginal revenue exceeds marginal cost
C)   there are many buyers only in a monopolistically competitive market
D)   there are many sellers in a monopolistically competitive market

Question 17

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

Accepted Answer

A)   enhance competition and reduce social wellbeing
B)   enhance competition and increase social wellbeing
C)   impede competition and increase social wellbeing
D)   impede competition and reduce social wellbeing

Question 18

A small number of sellers in a market makes rigorous competition:

Accepted Answer

A)   less likely and strategic interactions among them vitally important
B)   less likely and strategic interactions among them unimportant
C)   more likely and strategic interactions among them vitally important
D)   more likely and strategic interactions among them unimportant

Question 19

The reason that monopoly remains a root-word for monopolistically competitive market is because of:

Accepted Answer

A)   strategic interactions among sellers
B)   there being many sellers
C)   sellers being price makers rather than price takers
D)   the homogeneous products that are produced

Question 20

A new brewing company announces that it is releasing a new organic ale into the beer market. You can assume that the market for beer is characterised by monopolistic competition. According to the information provided, the beer market is likely to be more efficient if the:

Accepted Answer

A)   product-variety externality exceeds the business-stealing externality
B)   business-stealing externality exceeds the product-variety externality
C)   competitive externality exceeds the advertising externality
D)   advertising externality exceeds the competitive externality

Exam 16: Monopolistic Competition

Monopolistically competitive markets have two main sources of inefficiency: mark-up over marginal cost, and externalities associated with entry of new firms. Explain how these inefficiencies can have an impact on total welfare

Correct Answer
verified
Mark-up over marginal cost means that so...
View Answer

Correct Answer
verified

When a profit-maximising firm in a monopolistically competitive market charges a price higher than marginal cost, the:

Correct Answer
verified

A small number of sellers in a market makes rigorous competition:

Correct Answer
verified

What is the main point of difference between a monopolistically competitive market and an oligopoly?

Correct Answer
verified

Correct Answer
verified
In monopoly markets, price wil...
View Answer

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

Correct Answer
verified

Advertising can be used as a signal of product quality, even if the advertisement contains little information about the product.

Correct Answer
verified

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

Correct Answer
verified

If the principal effect of advertising is to decrease the elasticity of demand, the critics argue that firms will be able to:

Correct Answer
verified

What is the similarity between a long-run equilibrium in a monopolistically competitive market with a monopoly? What is the difference?

Correct Answer
verified
The similarity is that in both markets, ...
View Answer

Fill in the blanks. The deadweight loss that is associated with a _ market is a result of _.

Correct Answer
verified

The business stealing externality arises because firms post a price above marginal cost and are therefore always eager to sell additional units.

Correct Answer
verified

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals product quality.

Correct Answer
verified

A new brewing company announces that it is releasing a new organic ale into the beer market. You can assume that the market for beer is characterised by monopolistic competition. According to the information provided, the beer market is likely to be more efficient if the:

Correct Answer
verified

The use of celebrity endorsements in advertising has enabled firms to differentiate their products.

Correct Answer
verified

What is meant by the term 'excess capacity' as it relates to monopolistically competitive firms?

Correct Answer
verified
In the long run, monopolistica...
View Answer

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

Correct Answer
verified

The reason that monopoly remains a root-word for monopolistically competitive market is because of:

Correct Answer
verified

For profit-maximising firms in a monopolistically competitive market, another customer means:

Correct Answer
verified

Exam 16: Monopolistic Competition

Monopolistically competitive markets have two main sources of inefficiency: mark-up over marginal cost, and externalities associated with entry of new firms. Explain how these inefficiencies can have an impact on total welfare

Correct AnswerverifiedMark-up over marginal cost means that so...View AnswerShow Answer

Correct AnswerverifiedShow Answer

When a profit-maximising firm in a monopolistically competitive market charges a price higher than marginal cost, the:

Correct AnswerverifiedShow Answer

A small number of sellers in a market makes rigorous competition:

Correct AnswerverifiedShow Answer

What is the main point of difference between a monopolistically competitive market and an oligopoly?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIn monopoly markets, price wil...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Advertising can be used as a signal of product quality, even if the advertisement contains little information about the product.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the principal effect of advertising is to decrease the elasticity of demand, the critics argue that firms will be able to:

Correct AnswerverifiedShow Answer

What is the similarity between a long-run equilibrium in a monopolistically competitive market with a monopoly? What is the difference?

Correct AnswerverifiedThe similarity is that in both markets, ...View AnswerShow Answer

Fill in the blanks. The deadweight loss that is associated with a ___________ market is a result of ___________.

Correct AnswerverifiedShow Answer

The business stealing externality arises because firms post a price above marginal cost and are therefore always eager to sell additional units.

Correct AnswerverifiedShow Answer

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals product quality.

Correct AnswerverifiedShow Answer

A new brewing company announces that it is releasing a new organic ale into the beer market. You can assume that the market for beer is characterised by monopolistic competition. According to the information provided, the beer market is likely to be more efficient if the:

Correct AnswerverifiedShow Answer

The use of celebrity endorsements in advertising has enabled firms to differentiate their products.

Correct AnswerverifiedShow Answer

What is meant by the term 'excess capacity' as it relates to monopolistically competitive firms?

Correct AnswerverifiedIn the long run, monopolistica...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The reason that monopoly remains a root-word for monopolistically competitive market is because of:

Correct AnswerverifiedShow Answer

For profit-maximising firms in a monopolistically competitive market, another customer means:

Correct AnswerverifiedShow Answer

Correct Answer
verified
Mark-up over marginal cost means that so...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
In monopoly markets, price wil...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The similarity is that in both markets, ...
View Answer

Fill in the blanks. The deadweight loss that is associated with a _ market is a result of _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
In the long run, monopolistica...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified