Question 1

Why is it that a monopolistically competitive firm cannot earn positive economic profits in the long run?

Accepted Answer

A monopolistically competitive firm can ...

Question 2

In a long-run equilibrium in a monopolistically competitive industry that produces information products, revenues are equal to the ________ costs of developing, producing, and selling the product.

Accepted Answer

A)  total
B)  fixed
C)  variable
D)  marginalE) B) and C)
F) A) and C)

Question 3

Explain how advertising can act as a signal.

Accepted Answer

Advertising can act as a signal that the...

Question 4

Monopolistic competitors advertise because

Accepted Answer

A)  they have downward sloping demand curves.
B)  the demand curves they face are very elastic.
C)  they produce goods that can be differentiated from the goods of other firms in the industry.
D)  they can earn long-run profits if they advertise.E) A) and B)
F) A) and C)

Question 5

In a monopolistically competitive market if the additional revenue generated from advertising equals the additional cost of advertising, the firm should

Accepted Answer

A)  advertise more to increase sales.
B)  advertise more to lower marginal costs.
C)  maintain its current amount of advertising.
D)  advertise less to decrease costs.E) A) and C)
F) A) and B)

Question 6

Compared to a perfectly competitive firm, in a long run the monopolistically competitive firm will have

Accepted Answer

A)  a lower price.
B)  a lower average cost.
C)  a horizontal demand function.
D)  a lower rate of output.E) All of the above
F) A) and B)

Question 7

-For a monopolistically competitive firm,

Accepted Answer

A)  price equals marginal revenue at all levels of output.
B)  price is less than marginal revenue at all levels of output.
C)  price is greater than marginal revenue at all levels of output except for the first unit.
D)  the demand curve is perfectly inelastic and marginal revenue is zero.E) A) and B)
F) A) and C)

Question 8

There is no incentive for additional producers of an information product to enter the industry when the price charged for these products by each firm already in the industry is equal to

Accepted Answer

A)  marginal cost.
B)  average total cost.
C)  average fixed cost.
D)  average variable cost.E) C) and D)
F) B) and C)

Question 9

Which of the following statements is true about the economic profits earned by a monopolistic competitor firm in the long run?

Accepted Answer

A)  Economic profits can be positive since firms have some degree of monopoly power.
B)  Economic profits will be positive since the firm has a downward sloping demand curve.
C)  Economic profits will tend towards zero since positive profits will attract new firms into the industry.
D)  Economic profits can be negative since there is so much competition in the market.E) None of the above
F) B) and C)

Question 10

All of the following are characteristics of monopolistic competition EXCEPT

Accepted Answer

A)  a few firms dominate the industry.
B)  product differentiation.
C)  many firms in the industry.
D)  advertising.E) All of the above
F) None of the above

Question 11

In a monopolistically competitive market, having a large number of firms in the market means that

Accepted Answer

A)  no firm attempts to take into account the reaction of rival firms.
B)  individual firms will have a large portion of the market giving them monopoly power.
C)  firms will get together and collude because this will be the only way to earn monopoly profits.
D)  firms will cooperate with each other to drive competitors out of the market.E) A) and D)
F) A) and C)

Question 12

Typically a mix of informational and persuasive advertising is used for

Accepted Answer

A)  experience goods.
B)  credence goods.
C)  credible goods.
D)  search goods.E) A) and B)
F) A) and C)

Question 13

If monopolistically competitive firms earn short-run economic profits, we expect to see

Accepted Answer

A)  new firms enter the industry, which shifts the demand curves of the existing firms to the left until firms earn zero economic profits.
B)  new firms trying to enter the industry, but unable to do so because of barriers to entry.
C)  existing firms altering their scale of plant to try to capture larger profits. The combined effect is to cause all firms to earn zero economic profits.
D)  existing firms increasing prices to try to capture larger economic profits.E) B) and D)
F) A) and B)

Question 14

Monopolistic competition is characterized by

Accepted Answer

A)  relative ease of entry into the market.
B)  a standard, undifferentiated product.
C)  persistent long-run economic profits.
D)  production at minimum average cost in the long run.E) A) and B)
F) A) and C)

Question 15

Which of the following is most likely to be a monopolistically competitive firm?

Accepted Answer

A)  Smart phone producer
B)  Cell phone service provider
C)  College textbook publisher
D)  Computer software makerE) A) and B)
F) None of the above

Question 16

In a monopolistically competitive market, entry into the industry

Accepted Answer

A)  is relatively easy.
B)  is blocked.
C)  is difficult due to extensive government regulation.
D)  is as difficult as entry into a monopoly.E) A) and B)
F) C) and D)

Question 17

Which of the following is FALSE with respect to brand names and advertising?

Accepted Answer

A)  Because "differentness" has value to customers, monopolistically competitive firms regard their brand names as valuable.
B)  Firms use trademarks-words, symbols, and logos-to distinguish their product brands.
C)  Companies do not regard their brands as valuable private (intellectual) property because the value cannot be quantified.
D)  There is considerable shifting over time in the market value rankings of various U.S. product brands.E) A) and C)
F) All of the above

Question 18

Which of the following is NOT a characteristic of monopolistic competition?

Accepted Answer

A)  Product differentiation
B)  Barriers to entry into the market
C)  Advertising
D)  A significant number of sellersE) None of the above
F) C) and D)

Question 19

John has just tried on the most comfortable pair of pants that he has ever known. The pants are a(n)

Accepted Answer

A)  experience good.
B)  credence good.
C)  logo good.
D)  information good.E) All of the above
F) A) and D)

Question 20

If the producer of an information product engages in marginal cost pricing, it earns

Accepted Answer

A)  a normal profit.
B)  an economic loss.
C)  zero economic profits.
D)  positive economic profits.E) B) and D)
F) A) and B)

Exam 25: Monopolistic Competition

Monopolistic competition is characterized by

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If the producer of an information product engages in marginal cost pricing, it earns

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John has just tried on the most comfortable pair of pants that he has ever known. The pants are a(n)

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There is no incentive for additional producers of an information product to enter the industry when the price charged for these products by each firm already in the industry is equal to

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Monopolistic competitors advertise because

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In a monopolistically competitive market, entry into the industry

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-For a monopolistically competitive firm,

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All of the following are characteristics of monopolistic competition EXCEPT

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Compared to a perfectly competitive firm, in a long run the monopolistically competitive firm will have

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In a monopolistically competitive market, having a large number of firms in the market means that

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Explain how advertising can act as a signal.

Correct AnswerverifiedAdvertising can act as a signal that the...View AnswerShow Answer

Why is it that a monopolistically competitive firm cannot earn positive economic profits in the long run?

Correct AnswerverifiedA monopolistically competitive firm can ...View AnswerShow Answer

In a monopolistically competitive market if the additional revenue generated from advertising equals the additional cost of advertising, the firm should

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Which of the following is FALSE with respect to brand names and advertising?

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Which of the following is most likely to be a monopolistically competitive firm?

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In a long-run equilibrium in a monopolistically competitive industry that produces information products, revenues are equal to the ________ costs of developing, producing, and selling the product.

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Typically a mix of informational and persuasive advertising is used for

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Which of the following is NOT a characteristic of monopolistic competition?

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If monopolistically competitive firms earn short-run economic profits, we expect to see

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Which of the following statements is true about the economic profits earned by a monopolistic competitor firm in the long run?

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Advertising can act as a signal that the...
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A monopolistically competitive firm can ...
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