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668 Miller Economics Today, 16th Edition
26) A good that people must actually consume before they can determine qualities is called
A) a credence good. B) a search good.
C) an experience good. D) a persuasive good.
27) An experience good is a product
A) with qualities that consumers lack the expertise to assess without assistance.
B) that emphasizes the features of its product.
C) with characteristics that enable an individual to evaluate the product s quality in advance
of a purchase.
D) that an individual must consume before the quality can be established.
28) A good with qualities that consumers lack the experience to assess without assistance is called
A) a credence good. B) a search good.
C) an experience good. D) a persuasive good.
29) A credence good is a product
A) with qualities that consumers lack the expertise to assess without assistance.
B) that emphasizes the features of its product.
C) with characteristics that enable an individual to evaluate the product s quality in advance
of a purchase.
D) that an individual must consume before the quality can be established.
30) All of Jill s friends have been telling Jill that she must see a certain movie but she is not sure that
she will like it. The movie is a(n)
A) experience good. B) credence good.
C) logo good. D) search good.
31)
J
ohn has just tried on the most comfortable pair of pants that he has ever known. The pants are
a(n)
A) experience good. B) credence good.
C) logo good. D) information good.
32) Harry needs to hire a lawyer but does not know how to find a good one. The lawyer is a(n)
A) experience good. B) credence good.
C) logo good. D) search good.
33) Steve can tell if his car has been fixed or notit works, or it doesn tbut he cannot tell how it
was fixed. The car repair is a(n)
A) experience good. B) credence good.
C) logo good. D) search good.
34) If a customer buys an airline ticket based only on the price of the ticket, then the airline ticket is
a(n)
A) experience good. B) credence good.
C) logo good. D) search good.
35) The type of advertising that emphasizes the features of its product is
A) informational advertising. B) persuasive advertising.
C) search advertising. D) experience advertising.
36) The type of advertising that is used to induce a consumer to discover a previously unknown
taste for an item is known as
A) informational advertising. B) persuasive advertising.
C) search advertising. D) experience advertising.
37) Informational advertising is the type of advertising that
A) is used exclusively on television.
B) is used exclusively on radio.
C) emphasizes the features of a product.
D) is used to influence a consumer s tastes and preferences.
38) Persuasive advertising is the type of advertising that
A) is used exclusively on television.
B) is used exclusively on radio.
C) emphasizes the features of its product.
D) is used to induce a consumer to discover previously unknown tastes and preferences.
39) Informational advertising is mostly used for
A) a logo good. B) a search good.
C) an experience good. D) a persuasive good.
40) Persuasive advertising is mostly used for
A) a logo good. B) a search good.
C) an experience good. D) a persuasive good.
41) The type of advertising used for a search good is
A) informational advertising. B) persuasive advertising.
C) search advertising. D) experience advertising.
42) The type of advertising used for an experience good is
A) informational advertising. B) persuasive advertising.
C) search advertising. D) experience advertising.
43) When you see an advertisement on TV for a hair care product in which the actor using the
product is depicted as beautiful and happy, this is
A) informational advertising. B) direct market advertising.
C) indirect market advertising. D) persuasive advertising.
44) When you see a preview of a coming movie at the movie theater, this is
A) informational advertising. B) direct market advertising.
C) indirect market advertising. D) persuasive advertising.
45) The goal of advertising is to
A) increase the price elasticity of demand for the firm s product.
B) reduce the price elasticity of demand for the firm s product.
C) increase the standardization of the industry.
D) encourage firms to enter into the industry.
46) The goal of advertising is to
A) pay for public broadcasting.
B) differentiate a firm s product.
C) overwhelm the buyer so they buy a firm s product.
D) minimize cost curves for the firm.
47) Typically a mix of informational and persuasive advertising is used for
A) experience goods. B) credence goods.
C) credible goods. D) search goods.
48) Which statement is INCORRECT with respect to sales promotion and advertising?
A) Perfect competition differs from monopolistic competition in that no individual firm in a
perfectly competitive market will advertise.
B) A perfectly competitive firm, by definition, can sell all that it wants to sell at the going
market price.
C) A perfect competitor advertises a product that is different from the products that all other
firms in the industry are selling.
D) Advertising should be carried to the point at which the additional revenue from one more
dollar of advertising just equals that one dollar of marginal cost.
49) Advertising intended to reach as many consumers as possible, typically through television,
newspaper, or magazine ads is referred to as
A) interactive advertising. B) direct marketing.
C) mass marketing. D) subliminal advertising.
50) Which of the following is FALSE with respect to brand names and advertising?
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.
51) Which of the following is most likely to be the subject of informational advertising?
A) a search good B) a credible good
C) an experience good D) an inexperience good
52) Advertising that is intended to alter a consumer s tastes and preferences and induce the
customer to purchase a particular product is
A) persuasive advertising. B) educational advertising.
C) informational advertising. D) effective advertising.
53) An example of direct marketing is
A) the use of coupons in newspapers.
B) allowing the use of the product for 7 days before the consumer is billed for the product.
C) charging customers who pay with cash a different price than those using credit cards.
D) the use of personalized advertising by using mailing lists.
54) Out of all advertising spending, the largest share goes to
A) television ads. B) magazine ads.
C) direct marketing. D) newspaper ads.
55) A product that must be actually consumed before the quality of the product can be determined
is a(n)
A) search good. B) consumable good.
C) consumption good. D) experience good.
56) Advertising intended to induce a consumer to discover a previously unknown taste or
preference is
A) persuasive advertising. B) informational advertising.
C) direct advertising. D) mass marketing advertising.
57) Products such as office supplies are examples of
A) experience goods. B) simple goods.
C) search goods. D) selective goods.
58) When a pharmaceutical company advertises that its allergy medication is clinically proven to
alleviate hay fever symptoms, the pharmaceutical company is engaging in
A) informational advertising. B) trademark protection.
C) persuasive advertising. D) direct marketing.
59) Explain why the amount that firms spend on advertising depends on the characteristics of their
products.
60) Explain how advertising can act as a signal.
61) Explain the difference between informational advertising and persuasive advertising. Give an
example of a product that would be the subject of each type of advertising and explain why that
type of advertising fits the product.
62) Why would Sunkist incur substantial costs to advertise and establish a brand name when the
quality of its oranges can easily be evaluated by consumers?
25.5 Information Products and Monopolistic Competition
1) If a monopolistically competitive firm selling an information product engages in marginal cost
pricing, it will
A) earn additional profits.
B) fail to earn sufficient revenues to cover its fixed costs.
C) lower costs.
D)
b
reak even.
2) The manufacturers of information products typically
A) have low fixed costs. B) have high marginal costs.
C) have high fixed costs. D) have zero fixed costs.
3) In the long run, the price of information products in monopolistically competitive markets will
be equal to
A) AVC. B) MC. C) AFC. D) ATC.
4) The production of information products is characterized by
A) relatively low fixed cost. B) relatively low marginal cost.
C) diseconomies of operation. D) an upward sloping marginal cost curve.
5) The ATC curve for a firm that produces an information product
A) slopes downward, because AVC is constant, AFC slopes downward, and ATC AVC
AFC.
B) slopes upward, because AFC is constant, AVC slopes upward, and ATC AFC AVC.
C) is U shaped, because AVC is U shaped, AFC slopes downward, and ATC AVC AFC.
D) slopes downward, because MC slopes downward, AVC is constant, and ATC AVC
MC.
6) Which of the following conditions best explain the short run economies of operation associated
with production of an information product?
A) AVC slopes downward, and AFC is constant, so that ATC slopes downward.
B) AVC is constant, and AFC slopes downward, so that ATC slopes downward.
C) AFC is constant, and MC slopes downward, so that AVC slopes downward.
D) MC is constant, and MC slopes upward, so that AVC slopes upward.
7) If the producer of an information product engages in marginal cost pricing, it earns
A) a normal profit. B) an economic loss.
C) zero economic profits. D) positive economic profits.
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
A) marginal cost. B) average total cost.
C) average fixed cost. D) average variable cost.
9) 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.
A) total B) fixed C) variable D) marginal
10) A good that entails relatively high fixed costs associated with the use of knowledge and other
information intensive inputs as key factors of production is
A) a logo good. B) a search good.
C) a persuasive good. D) an information product.
11) Which of the following statements is generally TRUE about information products?
A) High fixed costs and low marginal costs
B) High fixed costs and high marginal costs
C) Low fixed costs and low marginal costs
D) Low fixed costs and high marginal costs
12) Marginal cost for an information product would
A) first decrease and then increase as quantity increases.
B) increase constantly as quantity increases.
C) decrease constantly as quantity increases.
D) remain constant as quantity increases.
13) A very high fixed cost and a relatively low marginal cost is associated with
A) every type of good or product. B) an information product.
C) a persuasive good. D) an experience good.
14) Average total cost for an information product would
A) first decrease and then increase as quantity increases.
B) increase constantly as quantity increases.
C) decrease constantly as quantity increases.
D) remain constant as quantity increases.
15) Average fixed cost for an information product would
A) first decrease and then increase as quantity increases.
B) increase constantly as quantity increases.
C) decrease constantly as quantity increases.
D) remain constant as quantity increases.
16) An information product is a product for which
A) the first item is produced inexpensively but additional units are more costly to produce.
B) the first unit is very costly to make but additional units are less costly to produce.
C) the marginal cost first falls and then rises but the average total cost rises throughout its
range.
D) the average fixed cost first falls and then rises, but the average total cost falls throughout
its range.
17) Average variable cost for an information product would
A) first decrease and then increase as quantity increases.
B) increase constantly as quantity increases.
C) decrease constantly as quantity increases.
D) remain constant as quantity increases.
18) Refer to the above figure. The above figure shows the cost structure of a firm producing an
information product. Which curve represents average total cost?
A) Any of the 3 could be ATC. B) Curve 1
C) Curve 2 D) Curve 3
19) Refer to the above figure. The above figure shows the cost structure of a firm producing an
information product. Which curve represents average fixed cost?
A) Curve 1 B) Curve 2
C) Curve 3 D) Any of the 3 could be AFC.
20) Refer to the above figure. The figure shows the cost structure of a firm producing an information
product. Which curve would represent the marginal cost for an information product?
A) Curve 1 B) Curve 2
C) Curve 3 D) none of the above
21) Refer to the above figure. The above figure shows the cost structure of a firm producing an
information product. Which curve would represent the average variable cost?
A) Curve 1 B) Curve 2
C) Curve 3 D) none of the above
22) Because the short run average total cost curve slopes downward for an information product,
the firm experiences
A) a downward sloping marginal cost curve.
B) a downward sloping average variable cost curve.
C) short run economies of operation.
D) long run diseconomies of scale.
23) Firms that produce an information product experience short run economies of operation
because
A) the firm will always produce in the decreasing portion of the marginal cost curve.
B) of the U shaped nature of the average total cost curve.
C) of the U shaped nature of the average variable cost curve.
D) the average total cost of producing and selling the product declines as output increases.
24) If a firm that produces an information product uses marginal cost pricing, then the firm
A) will earn negative profits.
B) will earn profits equal to zero.
C) will earn positive profits but could earn a higher profit by using a different method.
D) will maximize profits.
25) For a firm that sells an information product, the long run equilibrium exists at a point at which
economic profits are
A) negative. B) zero.
C) positive. D) dependent upon the particular product.
26) The long run equilibrium for a firm in an information product industry exists at a point at
which
A) marginal cost equals marginal revenue.
B) the demand curve crosses the marginal cost curve.
C) the demand curve is tangent to the average total cost curve.
D) average total cost is minimized.
27) For a firm that sells an information product, the long run equilibrium exists at a point where
A) price equals average total cost. B) price equals average variable cost.
C) price equals average fixed cost. D) price equals marginal cost.
28) Information products (e.g., software)
A) have relatively high fixed costs but low marginal and average variable costs.
B) have relatively low fixed costs but high marginal and average variable costs.
C) have relatively high fixed costs and relatively high marginal and average variable costs.
D) have relatively low fixed costs and relatively low marginal and average variable costs.
29) Which of the following statements is INCORRECT regarding the properties of information
products?
A) Providing an information product entails incurring relatively high fixed costs.
B) The average total cost curve for a firm that sells an information product slopes upward.
C) The firm experiences economies of operation in the short run.
D) In the long run, the producer earns sufficient revenue to cover the opportunity cost of
capital.
30) Which of the following statements is INCORRECT regarding the model for information
products?
A) Average total costs slope downward, because average variable cost is constant, average
fixed cost slopes downward.
B) The firm maximizes profit by setting the price of its product equal to marginal cost.
C) Marginal cost equals average variable cost.
D) In the long run, accounting profit is positive.
31) The first unit of an information product is produced at a high fixed cost. Producing additional
units entails relatively low
A) total costs. B) marginal and average variable cost.
C) external cost. D) social cost.
32) A distinguishing characteristic of producers of information products is their
A) low fixed costs. B) short run economies of operation.
C) low average fixed costs. D) low overhead.
33) The ATC curve and the AFC curve for information products (e.g., software) in the short run are
A) downward sloping. B) horizontal.
C) upward sloping. D) vertical.
34) A computer game is an example of
A) a public use product. B) an information product.
C) a capital good. D) a credibility product.
35) Firms that sell information products experience relatively high fixed costs but, once they have
produced the first unit, can
A) sell additional units at a loss, or above cost.
B) provide expensive information products to consumers.
C) sell additional units at a relatively low cost per unit.
D) experience short run diseconomies of scale.
36) An information product typically has
A) high total fixed costs and high marginal costs.
B) low total fixed costs and low marginal costs.
C) low total fixed costs and high marginal costs.
D) high total fixed costs and low marginal costs.
37) Marginal cost pricing for an information product
A) would cause the firm to experience economic losses.
B) would allow the firm to break even.
C) would cause the firm to earn economic profits.
D) would cause the firm to expand output to increase economic profits.
38) Explain how information products are special.
39) How does an information product differ from a product such as a desk?
40) For an information product, why a profit maximizing firm unable to practice marginal cost
pricing? How is its price determined in the long run?
