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Figure 16-12 Figure 16-12 -Refer to Figure 16-12. If this firm profit-maximizes, how much output will it produce? -Refer to Figure 16-12. If this firm profit-maximizes, how much output will it produce?

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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.

A) True
B) False

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


A) the market for those products is perfectly competitive.
B) it costs firms very little to produce those products.
C) those products are highly differentiated.
D) firms are irrational in their decisions to advertise.

E) All of the above
F) B) and D)

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Figure 16-5 Figure 16-5 -Refer to Figure 16-5. Which of the panels shown could illustrate the short-run situation for a monopolistically competitive firm? A) panel a B) panel b C) panel c D) All of the above are correct. -Refer to Figure 16-5. Which of the panels shown could illustrate the short-run situation for a monopolistically competitive firm?


A) panel a
B) panel b
C) panel c
D) All of the above are correct.

E) A) and B)
F) A) and C)

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Figure 16-11 Figure 16-11 -Refer to Figure 16-11. If this firm profit-maximizes, how much profit or loss will it earn? -Refer to Figure 16-11. If this firm profit-maximizes, how much profit or loss will it earn?

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In a long-run equilibrium,


A) only a perfectly competitive firm operates at its efficient scale.
B) only a monopolistically competitive firm operates at its efficient scale.
C) neither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost.
D) both a perfectly competitive firm and a monopolistically competitive firm operate at their efficient scale of production.

E) B) and C)
F) C) and D)

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Economists are unanimous in their belief that advertising is socially inefficient.

A) True
B) False

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Figure 16-6 Figure 16-6 -Refer to Figure 16-6. Which of the graphs shown would be consistent with a profit maximizing firm in a monopolistically competitive market that is earning a positive profit? A) panel a B) panel b C) panel c D) panel d -Refer to Figure 16-6. Which of the graphs shown would be consistent with a profit maximizing firm in a monopolistically competitive market that is earning a positive profit?


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

E) B) and D)
F) None of the above

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In a market that is characterized by imperfect competition,


A) firms are price takers.
B) there are always a large number of firms.
C) there are at least a few firms that compete with one another.
D) the actions of one firm in the market never have any impact on the other firms' profits.

E) A) and C)
F) B) and D)

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Which of the following industries has the lowest concentration ratio?


A) breakfast cereal
B) electric lamp bulbs
C) household laundry equipment
D) cigarettes

E) B) and C)
F) C) and D)

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Figure 16-3 This figure depicts a situation in a monopolistically competitive market. Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. How much output will the monopolistically competitive firm produce in this situation? A) 20 units B) 25 units C) 40 units D) 80 units -Refer to Figure 16-3. How much output will the monopolistically competitive firm produce in this situation?


A) 20 units
B) 25 units
C) 40 units
D) 80 units

E) All of the above
F) None of the above

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Scenario 16-9 Dean goes to the grocery store to buy chips and soda for a party. He purchases brand name products even though generic versions are available at lower prices. His friend John says he was irrational to spend more for a nearly identical product. His friend Martina agreed with Dean's decision to spend more for the brand name products. -Refer to Scenario 16-9. Martina offers two reasons for agreeing with Dean's decision. What are they?

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brand names provide informatio...

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Scenario 16-3 Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.) Scenario 16-3 Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.) -Refer to Scenario 16-3. Which of the following statements best describes the long run adjustment in this market? A) One or more ice cream shops in Fairfield closes, increasing the demand for Peter's ice cream. Peter's profits increase and he sustains positive profits in the long run. B) One or more ice cream shops in Fairfield closes, increasing the demand for Peter's ice cream. Peter's profits increase until he earns zero profit. C) One or more new ice cream shops in Fairfield opens and competes with Peter for customers, reducing the demand for Peter's ice cream. Peter's profits decline until he incurs losses and exits the industry. D) One or more new ice cream shops in Fairfield opens and competes with Peter for customers, reducing the demand for Peter's ice cream. Peter's profits decline until he earns zero profit. -Refer to Scenario 16-3. Which of the following statements best describes the long run adjustment in this market?


A) One or more ice cream shops in Fairfield closes, increasing the demand for Peter's ice cream. Peter's profits increase and he sustains positive profits in the long run.
B) One or more ice cream shops in Fairfield closes, increasing the demand for Peter's ice cream. Peter's profits increase until he earns zero profit.
C) One or more new ice cream shops in Fairfield opens and competes with Peter for customers, reducing the demand for Peter's ice cream. Peter's profits decline until he incurs losses and exits the industry.
D) One or more new ice cream shops in Fairfield opens and competes with Peter for customers, reducing the demand for Peter's ice cream. Peter's profits decline until he earns zero profit.

E) All of the above
F) A) and B)

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The debate over whether advertising serves a valuable purpose in society is definitively answered by economists who study the tastes and preferences of individuals.

A) True
B) False

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Among arguments for and against advertising, both sides agree that advertising leads to


A) higher prices and less competitive markets.
B) higher prices and more competitive markets.
C) lower prices and more competitive markets.
D) None of the above is correct. The debate fails to resolve the question of advertising's effect on prices and competition.

E) A) and B)
F) B) and D)

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Long-run profit earned by a monopolistically competitive firm is driven to the competitive level due to a(n)


A) change in the technology that the firm utilizes.
B) shift of its demand curve.
C) shift of its supply curve.
D) increase in the firm's average cost of production.

E) A) and D)
F) C) and D)

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A concentration ratio


A) measures the percentage of total sales of the top firm in the industry.
B) reflects the level of competition in an industry.
C) is inversely related to the price charged by the top firm in the industry.
D) All of the above are correct.

E) B) and D)
F) All of the above

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Which of the following statements is not correct?


A) Critics of advertising argue that firms advertise to manipulate consumers' tastes.
B) Defenders of advertising argue that advertising provides valuable product information to consumers.
C) An industry with many brand name products will be more competitive than one with many generic products.
D) The willingness of a firm to spend a large amount of money on advertising can signal the quality of the product.

E) B) and C)
F) A) and C)

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Scenario 16-7 Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product 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 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini'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, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units. -Refer to Scenario 16-7. If YumYum decides to advertise its product it can expect to


A) incur a loss of $15 million.
B) incur a loss of $1.5 million.
C) earn a profit of $1.5 million.
D) earn a profit of $13.5 million.

E) B) and C)
F) A) and B)

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Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost?


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

E) B) and C)
F) None of the above

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