True / False
1. There are four basic types of market structure.
a.
True
b.
False
2. The “competition” in monopolistically competitive markets is most likely a result of having many sellers in the market.
a.
True
b.
False
3. The “monopoly” in monopolistically competitive markets is most likely a result of firms having some pricing power
due to product differentiation.
a.
True
b.
False
4. Monopolistic competition is characterized by many buyers and sellers, product differentiation, and free entry.
a.
True
b.
False
5. Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry.
a.
True
b.
False
6. A monopolistically competitive market is characterized by barriers to entry.
a.
True
b.
False
7. The market for wheat is most likely considered a monopolistically competitive market.
a.
True
b.
False
8. Monopolistic competition is the only market structure that features many sellers.
a.
True
b.
False
9. Product differentiation always leads to some measure of market power.
a.
True
b.
False
10. Oligopoly is characterized by a few sellers offering similar products, whereas monopolistic competition is
characterized by many sellers offering differentiated products.
a.
True
b.
False
11. To be considered an oligopoly, the market must have a concentration ratio below 50%.
a.
True
b.
False
12. Monopolistic competition is characterized by a few sellers offering similar products, whereas oligopoly is
characterized by many sellers offering differentiated products.
a.
True
b.
False
13. Oligopoly and monopolistic competition are examples of a market structure called imperfect competition.
a.
True
b.
False
14. Monopolistic competition and monopoly are examples of a market structure called imperfect competition.
a.
True
b.
False
15. A markup of price over marginal cost is inconsistent with free entry and zero profit.
a.
True
b.
False
16. Monopolistically competitive firms, like monopoly firms, maximize their profits by charging a price that exceeds
marginal cost.
a.
True
b.
False
17. A profit-maximizing firm in a monopolistically competitive market charges a price equal to marginal cost.
a.
True
b.
False
18. For a profit-maximizing firm in a monopolistically competitive market, when price is equal to average total cost, price
must lie above marginal cost.
a.
True
b.
False
19. A profit-maximizing firm in a monopolistically competitive market can earn positive, negative, or zero profits in the
short run.
a.
True
b.
False
20. A firm in a monopolistically competitive market can earn both short-run and long-run profits.
a.
True
b.
False
21. A firm in a monopolistically competitive market can earn short-run profits but not long-run profits.
a.
True
b.
False
22. In the long run, monopolistically competitive firms produce where demand equals marginal cost.
a.
True
b.
False
23. When a firm in a monopolistically competitive market earns zero economic profit, its product price must equal
marginal cost.
a.
True
b.
False
24. In the long run, monopolistically competitive firms produce where demand equals average total cost.
a.
True
b.
False
25. In a long-run equilibrium, both perfectly competitive markets and monopolistically competitive markets have price
equal to average total cost.
a.
True
b.
False
26. In a long-run equilibrium, firms in both perfectly competitive markets and monopolistically competitive markets
produce a quantity below the efficient scale of production.
a.
True
b.
False
27. When a monopolistically competitive firm is in a long-run equilibrium, the values of marginal cost, average total cost,
and price are all the same.
a.
True
b.
False
28. In a monopolistically competitive market, the number of firms adjusts until economic profits are driven to zero.
a.
True
b.
False
29. When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium, marginal cost
must lie below average total cost.
a.
True
b.
False
30. In a monopolistically competitive market, the demand curves faced by incumbent firms are unaffected by the entry of
new firms into the market.
a.
True
b.
False
31. A monopolistically competitive firm faces a downward-sloping demand curve because there are few firms in the
market.
a.
True
b.
False
32. 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
33. The term excess capacity refers to the fact that a firm operates on the upward-sloping portion of its average-total-cost
curve.
a.
True
b.
False
34. The term excess capacity refers to the fact that a firm produces a lower quantity than it would if it operated at the
efficient scale.
a.
True
b.
False
35. Excess capacity characterizes firms in monopolistically competitive markets, even in situations of long-run
equilibrium.
a.
True
b.
False
36. When a firm operates with excess capacity, it must be in a monopolistically competitive market.
a.
True
b.
False
37. A firm that would experience higher average total cost by increasing production is operating with excess capacity.
a.
True
b.
False
38. When a firm operates at efficient scale, it is producing at the minimum point on its average total cost curve.
a.
True
b.
False
39. The product-variety externality states that entry of a new firm conveys a negative externality on consumers.
a.
True
b.
False
40. The product-variety externality states the benefits to consumers from the introduction of a new product.
a.
True
b.
False
41. The business-stealing externality states that entry of a new firms imposes a cost on existing firms because they lose
customers.
a.
True
b.
False
42. The product-variety externality and the business-stealing externality are both spillover costs of new firms entering a
monopolistically competitive market.
a.
True
b.
False
43. The product-variety externality and the business-stealing externality are both spillover benefits of new firms entering
a monopolistically competitive market.
a.
True
b.
False
44. Defenders of advertising argue that firms use advertising as a signal of quality, even if the advertising delivers little
helpful information about the product.
a.
True
b.
False
45. Critics of advertising argue that advertising leads to less elastic demand for products and a larger markup of price over
marginal cost.
a.
True
b.
False
46. The claim that advertising reduces the elasticity of demand is likely to be made by a defender of advertising.
a.
True
b.
False
47. Critics of advertising argue that firms use advertising to manipulate consumers’ tastes.
a.
True
b.
False
48. One thing that both critics of advertising and defenders of advertising agree on is that advertising fosters competition.
a.
True
b.
False
49. When advertising is used to relay information about price, each firm is able to enhance market power.
a.
True
b.
False
50. Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.
a.
True
b.
False
51. Economists are unanimous in their belief that advertising is socially inefficient.
a.
True
b.
False
52. When McDonald’s opens a store in Dhaka, Bangladesh, it has a strong incentive to enforce product quality consistent
with stores in the United States.
a.
True
b.
False
53. The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York. This is an
example of a brand name enhancing market efficiency for U.S. tourists visiting the Philippines.
a.
True
b.
False
54. Empirical evidence suggests that advertising usually leads to an increase in the price for advertised products.
a.
True
b.
False
55. Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior
product quality.
a.
True
b.
False
56. Advertising during the Super Bowl is an example of information about quality contained primarily in the existence
and expense of the advertising.
a.
True
b.
False
57. Brand names are rarely used to convey information about product quality.
a.
True
b.
False
58. The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy. Defenders of the efficiency of
brand-name markets would argue that this has hindered restaurant market efficiency in Italy.
a.
True
b.
False
59. 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
60. If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be
able to charge a larger markup over marginal cost.
a.
True
b.
False
61. 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.
a.
True
b.
False
62. The government may not be able to improve the inefficiencies of a monopolistically competitive market.
a.
True
b.
False
63. Firms in monopolistically competitive markets and monopolies can earn long-run profits due to barriers to entry.
a.
True
b.
False
64. Free entry eliminates long-run profits for firms in competitive and monopolistic industries.
a.
True
b.
False
65. In the long run, a monopolistically competitive firm produces at efficient scale.
a.
True
b.
False
66. A monopolistically competitive firm cannot earn an economic profit in the long run.
a.
True
b.
False
67. In the long run, a monopolistically competitive firm’s demand curve becomes more elastic and shifts to the left
a.
True
b.
False
68. A monopolistically competitive firm is a price-taker.
a.
True
b.
False
69. If a monopolistically competitive firms incurs an increase in fixed costs, its price will rise and its output will fall.
a.
True
b.
False