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Page 1
1.
If the toothpaste market is monopolistically competitive, product differentiation would
not take the form of:
A)
production of many varieties of toothpaste, including those with whitening agents.
B)
differentiation in the locations where certain toothpastes are available.
C)
quality differences among the various brands.
D)
setting the price of the product well below the price charged by the rivals.
2.
In many cities you, can stay at a Holiday Inn in the downtown area, in a suburban
community, or near the airport. These Holiday Inn establishments are examples of
product differentiation by:
A)
type.
B)
location.
C)
quality.
D)
style.
3.
Many customers will walk right past a diner that serves coffee and go to Starbucks,
where they pay more for a cup of java. For these customers, coffee is differentiated by:
A)
style.
B)
location.
C)
quality.
D)
type.
4.
The sources of product differentiation do not include:
A)
differences in location.
B)
differences in quality.
C)
the perception by consumers that products are different, even if they are physically
identical.
D)
consumers' dislike of having options.
5.
Which factor is not a source of product differentiation?
A)
price
B)
location
C)
style
D)
quality
6.
Firms in monopolistic competition can acquire some market power by:
A)
product differentiation.
B)
engaging in tacit collusion.
C)
producing where MR > MC.
D)
increasing their output to the perfectly competitive level.
Page 2
7.
When a monopolistically competitive industry earns economic profit, the result of
competition among sellers is usually that:
A)
the price of the product increases to monopoly level.
B)
the price of the product quickly reaches the perfectly competitive level.
C)
firms in the industry gain market share.
D)
firms in the industry lose market share.
8.
Which scenario is likely to provide the LEAST amount of economic usefulness?
A)
NFL player Peyton Manning is shown throwing a football in a toothpaste
commercial.
B)
An online advertisement is posted at Cars.com for a 2005 Volvo S60 with 60,000
miles, a sunroof, and heated leather seats.
C)
An actor in a television commercial is describing the benefits and side effects of a
new arthritis medication.
D)
A radio commercial for a local restaurant is announcing special prices during any
college football broadcast.
9.
Which advertising slogan provides information to potential buyers?
A)
"Coffee Palace-Stop and smell the coffee!"
B)
"Karaoke Maker wants you to just sing it!"
C)
"Bee's Beachside Restaurant is the only restaurant on the beach for 50 miles."
D)
"The Happy Hotel wants you to be happy!"
10.
Some economists think that advertising is a waste of resources because:
A)
rational consumers end up spending too little on brand names.
B)
consumers may buy things they do not need.
C)
advertising creates excess capacity.
D)
advertising leads to lower costs for goods and services.
11.
Monopolistic competitors often hire a celebrity spokesperson to advertise their product.
One reason such advertising works is that:
A)
celebrities are better informed about the relative merits of different products than
are the rest of us.
B)
consumers assume that the celebrity has researched the product and that the claims
being made on his or her behalf are true.
C)
the fact that a firm is willing to pay the large fees associated with celebrity
advertising signals to consumers that it is a major company and that it is therefore
likely to have a reliable product.
D)
celebrities encourage other firms to enter the industry.
Page 3
12.
Budweiser is a widely recognized brand name. During the Super Bowl each year, this
beer company has many of the most successful ads. Which statement is TRUE about
advertising for Budweiser?
A)
It is designed to increase the demand for Budweiser.
B)
It decreases the costs of supplying Budweiser.
C)
It guarantees customers that Budweiser tastes better than do other beers.
D)
It is designed to increase excess capacity.
13.
Which statement about advertising is true?
A)
There is no role for advertising in perfect competition.
B)
Firms in monopolistic competition and oligopoly use advertising without the
expectation of increasing profit.
C)
Advertising has costs but few if any benefits.
D)
Advertising is critical in the long run but not the short run.
14.
Critics of advertising argue that it:
A)
tends to make markets more perfect.
B)
leads to low-cost mass production.
C)
results in higher prices to consumers.
D)
encourages competition through new-product advertising.
15.
Those who are critical of advertising argue that it:
A)
tends to make markets behave more like perfectly competitive markets.
B)
leads to a shortage of high-cost, high-quality goods.
C)
results in higher prices to consumers.
D)
encourages competition through price comparison.
16.
Defenders of advertising argue that it:
A)
seeks to persuade, rather than inform, buyers.
B)
provides education and information about products.
C)
facilitates the concentration of monopoly power.
D)
encourages artificial product differentiation.
17.
Advertising is an economically productive activity and NOT a waste of resources
because it:
A)
increases sales.
B)
can convey information about the product.
C)
can signal that firms are desperate for customers.
D)
can decrease the costs of production.
Page 4
18.
Among the drawbacks of brand names is the fact that they:
A)
may encourage the consumption of expensive substitutes for generic items.
B)
provide some assurance of consistency of quality.
C)
convey information about the nature of the product.
D)
indicate that the seller is engaged in repeated interaction with its customers.
19.
Shops that sell live bait to people in Alabama may be monopolistically competitive if
there is product differentiation and differentiation by location.
A)
True
B)
False
20.
As product differentiation increases, the price elasticity of demand falls and the firm
increases its market power.
A)
True
B)
False
21.
In monopolistic competition, the primary source of product differentiation is price
competition.
A)
True
B)
False
22.
Firms in monopolistic competition can gain some market power by engaging in product
differentiation.
A)
True
B)
False
23.
Economics textbooks are an example of product differentiation by type and style.
A)
True
B)
False
24.
All advertising is clearly a waste of resources.
A)
True
B)
False
25.
Only irrational consumers are affected by advertising.
A)
True
B)
False
Page 5
26.
Advertising is more likely to occur in perfect competition than in monopolistic
competition.
A)
True
B)
False
27.
A wheat farmer is more likely to advertise than is a restaurant that sells fast food
hamburgers.
A)
True
B)
False
28.
Only firms with some market power will gain from individually advertising their
product.
A)
True
B)
False
29.
A brand name may be valuable because it differentiates a company's products in the
minds of consumers.
A)
True
B)
False
30.
Relying on brand names will always lead consumers to the best consumption choices if
they buy the brand name, rather than a cheaper substitute.
A)
True
B)
False
31.
Brand names offer some assurance that the seller has a reputation to protect and hopes
to be engaged in repeated transactions with its customers.
A)
True
B)
False
32.
A brand name is owned by a particular firm, and it distinguishes that firm's products
from those of its competitors.
A)
True
B)
False
Page 6
33.
A university town has many clothing retailers. Some of the stores sell sweatshirts and
T-shirts to college students, and other stores sell suits, sport coats, and business casual
wear to college professors. How are these retail stores differentiating the products that
they sell?
34.
Do economists consider advertising to be an economically productive activity? Explain.
35.
Why are some rational consumers willing to pay more for a bottle of Advil than for a
bottle of generic ibuprofen tablets, when ibuprofen is the active ingredient in Advil?
36.
A monopolistic competitor will advertise to:
A)
reduce excess capacity.
B)
increase demand for its product.
C)
collude more effectively with other firms.
D)
produce on the upward-sloping portion of its ATC curve.
