Question 1

Monopolistic competition is an

Accepted Answer

A)  inefficient market structure because there is deadweight loss.
B)  inefficient market structure because price exceeds marginal cost.
C)  efficient market structure because free entry drives long-run profits to zero.
D)  Both a and b are correct.E) A) and D)
F) B) and C)

Question 2

​If a monopolistically competitive firms incurs an increase in fixed costs, its price will rise and its output will fall.

Accepted Answer

A) True 
 B)False

Question 3

Which type of market structure has the fewest number of firms?

Accepted Answer

The answer of Which type of market structure has the...

Question 4

Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale. If this law were to pass and be enforced, we would expect that monopolistically competitive firms would

Accepted Answer

A)  see their profits increase.
B)  break even.
C)  lose money.
D)  not really be affected by the law.E) A) and B)
F) A) and C)

Question 5

Scenario 16-6
Ike's Ice Cream has decided to open a new ice cream parlor in Mayville, MS. The market for ice cream parlors is monopolistically competitive.
-Refer to Scenario 16-6. As a result of the new Ike's Ice Cream parlor, consumers living in and visiting Mayville are likely to experience a

Accepted Answer

A)  business-stealing externality, which harms producers.
B)  business-stealing externality, which benefits producers.
C)  product-variety externality, which harms consumers.
D)  product-variety externality, which benefits consumers.E) A) and B)
F) None of the above

Question 6

Figure 16-3
This figure depicts a situation in a monopolistically competitive market. 
-Refer to Figure 16-3. How much profit will the monopolistically competitive firm earn in this situation?

Accepted Answer

A)  $0
B)  $80
C)  $200
D)  $400E) None of the above
F) C) and D)

Question 7

Which of the following is an example of a monopolistically competitive industry?

Accepted Answer

A)  electric lamp bulbs
B)  aircraft manufacturing
C)  corn
D)  sweatersE) None of the above
F) A) and B)

Question 8

Figure 16-10
The figure is drawn for a monopolistically-competitive firm. 
-Refer to Figure 16-10. As the figure is drawn, the firm is in

Accepted Answer

A)  a short-run equilibrium but it is not in a long-run equilibrium.
B)  a long-run equilibrium but it is not in a short-run equilibrium.
C)  a short-run equilibrium as well as a long-run equilibrium.
D)  neither a short-run equilibrium nor a long-run equilibrium.E) A) and D)
F) None of the above

Question 9

Figure 16-13 
-Refer to Figure 16-13. Use the letters to identify the area of total revenue for this firm.

Accepted Answer

The answer of Figure 16-13 
-Refer to Figure 16-13. Use...

Question 10

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

Accepted Answer

A)  average revenue exceeds marginal revenue
B)  marginal revenue equals marginal cost
C)  price exceeds marginal cost
D)  All of the above are correct.E) B) and D)
F) A) and D)

Question 11

When consumers are exposed to additional choices that result from the introduction of a new product,

Accepted Answer

A)  their satisfaction is likely to be lowered as a result of their having to make additional choices.
B)  a product-variety externality is said to occur.
C)  an advertising externality is said to occur.
D)  consumers are likely to experience negative consumption externalities.E) B) and C)
F) A) and B)

Question 12

​Which of the following is the most distinguishing characteristic of a monopolistically competitive industry?

Accepted Answer

A)  ​Market barriers
B)  ​One firm controls the industry
C)  ​Product differentiation
D)  ​A small number of firms dominate the marketE) A) and C)
F) B) and C)

Question 13

Professional organizations and producer groups have an incentive to

Accepted Answer

A)  restrict advertising in order to enhance competition on the basis of price.
B)  restrict advertising in order to reduce competition on the basis of price.
C)  encourage advertising in order to reduce competition on the basis of price.
D)  encourage advertising in order to enhance competition on the basis of price.E) All of the above
F) None of the above

Question 14

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

Accepted Answer

A)  firms would most likely experience economic losses.
B)  firms would also operate at their efficient scale.
C)  new firms would likely to enter the market.
D)  the most efficient firms would not likely to be affected.E) B) and D)
F) B) and C)

Question 15

A firm can signal the high quality of its product by

Accepted Answer

A)  spending nothing on advertising to convey that the product is so good that the firm does not even need to advertise.
B)  spending a large amount of money on advertising.
C)  getting a patent for the product.
D)  not worrying about getting a patent for the product.E) B) and C)
F) B) and D)

Question 16

Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because

Accepted Answer

A)  there are many other sellers in the market.
B)  there are very few other sellers in the market.
C)  the firm's product is different from those offered by other firms in the market.
D)  the firm faces the threat of entry into the market by new firms.E) All of the above
F) B) and C)

Question 17

Figure 16-14 
-Refer to Figure 16-14. Which letter identifies the efficient level of output for this firm?

Accepted Answer

The answer of Figure 16-14 
-Refer to Figure 16-14. Which...

Question 18

Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm experience zero economic profit?

Accepted Answer

A)  perfect competition only
B)  perfect competition and monopolistic competition only
C)  perfect competition, monopolistic competition, and monopoly
D)  The answer cannot be determined without knowing whether the market is in the long run or short run.E) A) and C)
F) A) and B)

Question 19

Advertising that uses celebrity endorsements is most likely intended to

Accepted Answer

A)  increase elasticity of demand for the advertised product.
B)  reduce the ability of markets to allocate resources efficiently.
C)  provide a signal of product quality.
D)  be useful only for psychological effects.E) None of the above
F) C) and D)

Question 20

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries. 
-Refer to Table 16-1. Which industry is the most competitive?

Accepted Answer

A)  Industry A
B)  Industry B
C)  Industry C
D)  Industry DE) A) and B)
F) B) and D)

Exam 16: Monopolistic Competition

Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm experience zero economic profit?

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Monopolistic competition is an

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A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

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Professional organizations and producer groups have an incentive to

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Which of the following is an example of a monopolistically competitive industry?

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Scenario 16-6 Ike's Ice Cream has decided to open a new ice cream parlor in Mayville, MS. The market for ice cream parlors is monopolistically competitive. -Refer to Scenario 16-6. As a result of the new Ike's Ice Cream parlor, consumers living in and visiting Mayville are likely to experience a

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Figure 16-14 -Refer to Figure 16-14. Which letter identifies the efficient level of output for this firm?

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When consumers are exposed to additional choices that result from the introduction of a new product,

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Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. How much profit will the monopolistically competitive firm earn in this situation?

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Figure 16-13 -Refer to Figure 16-13. Use the letters to identify the area of total revenue for this firm.

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Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because

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​Which of the following is the most distinguishing characteristic of a monopolistically competitive industry?

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Which type of market structure has the fewest number of firms?

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Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1. Which industry is the most competitive?

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Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale. If this law were to pass and be enforced, we would expect that monopolistically competitive firms would

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​If a monopolistically competitive firms incurs an increase in fixed costs, its price will rise and its output will fall.

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If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

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Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. As the figure is drawn, the firm is in

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A firm can signal the high quality of its product by

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Advertising that uses celebrity endorsements is most likely intended to

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Which of the following is the most distinguishing characteristic of a monopolistically competitive industry?

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If a monopolistically competitive firms incurs an increase in fixed costs, its price will rise and its output will fall.

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