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Exam 16: Monopolistic Competition

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Question 191

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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) the actual quality of the product is irrelevant.
B) the content of the advertisement is irrelevant.
C) advertising is not in the best interest of society.
D) it is irrational for firms to pay famous people large amounts of money to appear in their advertisements.

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Question 192

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The market for novels is

A) perfectly competitive.
B) a monopoly.
C) monopolistically competitive.
D) an oligopoly.

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Question 193

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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,

If we observe a great deal of advertising of men's shaving products,we can infer that

Scenario 16-2 McDonald's restaurants has recently announced intentions to open a new restaurant in Smalltown,Indiana.Assume that the fast-food restaurant market in Smalltown is characterized by monopolistic competition. -Refer to Scenario 16-2.As a result of the new McDonald's,existing fast food restaurants in Smalltown are likely to

Table 16-5 Traci's Hairstyling is one salon among many in the market for hairstyling.The following table presents cost and revenue data for hair cuts at Traci's Hairstyling. -Refer to Table 16-5.Suppose the government forced Traci's to produce at the efficient scale of output.Who would be better off as a result of this policy? Who would be worse off as a result of this policy?

Empirical evidence suggests that advertising usually leads to an increase in the price for advertised products.

A recent outbreak of hepatitis was linked to a national fast-food restaurant chain.This is an example of a case in which

Under which of the following market structures would the highest output of a particular good be produced?

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

New firms will likely enter a monopolistically competitive market when price exceeds

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 2 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 2 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 2 million customers will buy one unit of the product each month in the coming year,for a total of 24 million units. -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

Consider a monopolistically competitive firm in a market in long-run equilibrium.This firm is likely earning

The term excess capacity refers to the fact that a firm operates on the upward-sloping portion of its average-total-cost curve.

A similarity between monopoly and monopolistic competition is that in both market structures

Table 16-4 This table shows the demand schedule,marginal cost,and average total cost for a monopolistically competitive firm. -Refer to Table 16-4.How much profit will this firm earn at the monopolistically competitive price?

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.

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

Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell

In some countries,brand name fast-food restaurants are not allowed to operate.Such restrictions are likely to