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Exam 16: Monopolistic Competition.

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Question 81

Multiple Choice

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One theory of advertising suggests that

A) information on price is important to make advertising effective.
B) the content of advertising may be irrelevant to product success in the market.
C) celebrity advertising is not effective in retail food markets.
D) Post and Kellogg should not advertise new cereals.

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

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Question 82

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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,residents of Smalltown are likely to benefit from

A) a product-variety externality.
B) a business-stealing externality.
C) the fact that McDonald's will increase its production to achieve the efficient scale.
D) Both b and c are correct.

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

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Question 83

Multiple Choice

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Figure 16-4 -Refer to Figure 16-4.Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

The claim that advertising reduces the elasticity of demand is likely to be made by a defender of advertising.

For a profit-maximizing monopolistically competitive firm,marginal revenue equals marginal cost in

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

Figure 16-1. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-1.In order to maximize profit,the firm will charge a price of

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.What is the concentration ratio in Industry Z?

Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. -Refer to Table 16-3.Which industry has the highest concentration ratio?

There is general disagreement among economists about the role of advertising,but there is widespread agreement about the role of brand names on market efficiency.

The two types of imperfectly competitive markets are

To be considered an oligopoly,the market must have a concentration ratio below 50%.

Figure 16-2 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-2.How much output will the monopolistically competitive firm produce in this situation?

Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. -Refer to Table 16-2.Which industry is the most competitive?

Suppose that monopolistically competitive firms in a certain market are experiencing losses.In the transition from this initial situation to a long-run equilibrium,

Which of the following statements is not correct?

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

Scenario 16-4 Consider the problem facing two firms, Burger Prince and McDaniel's, 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 $5. Assume that the marginal cost for each new menu item is a constant $3, and the only fixed cost is for advertising. Each company knows that if it spends $16 million on advertising it will get 2 million consumers to try its new product. Burger Prince 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. McDaniel's'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, McDaniel's estimates that its initial 2 million customers will buy one unit of the product each month in the coming year, for a total of 32 million units. -Refer to Scenario 16-4.On the basis of a theory that people buy a product because it is advertised,the content of advertisements for McDaniel's product

A monopolistically competitive firm has the following cost structure: The firm faces the following demand curve: To maximize profit (or minimize losses) ,the firm will produce

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market