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Economic
Q:
A monopolistically competitive firm can convince buyers that its product has value by differentiating its product to suit consumers' preferences.
Q:
If the demand curve for a firm is downward-sloping, its marginal revenue curve
A) will lie above the demand curve.
B) will lie below the demand curve.
C) is the same as the demand curve.
D) is horizontal.
Q:
If buyers of a monopolistically competitive product feel the products of different sellers have little differences between them, then the demand for each seller's product is relatively elastic.
Q:
For a monopolistically competitive firm, marginal revenue
A) equals the price.
B) is greater than the price.
C) is less than the price.
D) and price are unrelated.
Q:
Which of the following statements is true?
A) Input prices are one of the success factors that firms can control.
B) Consumers will buy a product only if its price is below that of its competitors.
C) Consumers will buy a product only if it meets a need not met by competing products.
D) Sheer chance can play a significant role in the success or failure of a business.
Q:
Which of the following is true of a typical firm in a monopolistically competitive industry?
A) Product differentiation allows a successful firm to emerge as a market leader in the industry.
B) All firms have identical cost structures.
C) The more successful firms have an incentive to merge in order to exert greater market power.
D) Each firm acts independently.
Q:
In a monopolistically competitive market, a successful new restaurant
A) can earn economic profits in the long run if it uses barriers to restrict entry by new restaurants.
B) will earn zero economic profit in the long run because of free entry, but competition will lead restaurants to offer different versions of the same product.
C) will face high entry barriers because of health and safety regulations to which all restaurants are subject.
D) must obtain a trademark to ensure that it will break even in the long run.
Q:
A monopolistically competitive firm will
A) charge the same price as its competitors do.
B) always produce at the minimum efficient scale of production.
C) have some control over its price because its product is differentiated.
D) produce an output level that is productively and allocatively efficient.
Q:
The marketing of the first ballpoint by Milton Reynolds showed
A) that first-mover advantages can make it more difficult for new firms to enter a market and compete against the first mover.
B) that being the first firm to market a new product can result in a natural monopoly.
C) that being the first firm to market a product may not lead to a long-lived advantage over later entrants into the market.
D) how important it is to receive patent protection for a new product.
Q:
A monopolistically competitive firm faces a downward-sloping demand curve because
A) it is able to control price and quantity demanded.
B) there are few substitutes for its product.
C) of product differentiation.
D) its market decisions are affected by the decisions of its rivals.
Q:
Being the first to sell a particular good can give a firm advantages over other firms that sell similar products. What is the name given to these advantages?
A) first-mover
B) first come, first served
C) follow the leader
D) first to market
Q:
If a firm faces a downward-sloping demand curve
A) the demand for its product must be inelastic.
B) it can control both price and quantity sold.
C) it must reduce its price to sell more units.
D) it will always make a profit.
Q:
Some factors that allow firms to make economic profits are beyond its control. All but one of the following is an uncontrollable factor. Which factor is controllable?
A) input prices
B) consumer tastes
C) chance events
D) product differentiation
Q:
Which of the following is true for a firm with a downward-sloping demand curve for its product?
A) Price, average revenue, and marginal revenue are all equal.
B) Price, average revenue, and marginal revenue are all different.
C) Price equals average revenue but is greater than marginal revenue.
D) Price equals average revenue but is less than marginal revenue.
Q:
A firm cannot control all of the factors that allow it to make economic profits. Which of the following is an example of an uncontrollable factor?
A) product differentiation
B) input prices
C) producing at a lower average total cost than competing firms
D) hiring competent managers
Q:
In monopolistic competition there is/are
A) many sellers who each face a downward-sloping demand curve.
B) a few sellers who each face a downward-sloping demand curve.
C) only one seller who faces a downward-sloping demand curve.
D) many sellers who each face a perfectly elastic demand curve.
Q:
The most important of the factors that make a firm successful and that can be controlled by the firm's owners and managers are
A) the establishment of trademarks for its products and the aggressive defense of those trademarks.
B) lobbying government to erect or enforce entry barriers in its markets and the marketing of its products as widely as possible.
C) the differentiation of its products and the production of products at a lower average cost than competing firms.
D) the selection of the prices of its products and the selection of the most productive and loyal employees.
Q:
Which of the following is not an example of a monopolistically competitive market?
A) automobile producers
B) supermarkets
C) video stores
D) makers of women's clothing
Q:
Article Summary
As a part of its 2013 marketing campaign, the Greater Fort Lauderdale Convention & Visitors Bureau (CVB) set its sights on increasing travel to the region by with promotions to the lesbian, gay, bisexual and transgender community (LGBT). From August through November, the CVB has events scheduled across the United States and globally in an effort to attract a larger share of this travel segment. According to the CVB, Fort Lauderdale is the state's largest and most popular diverse gay capital, and their marketing efforts helped attract 1.2 million LGBT tourists who spent $1.4 billion in 2012.
Source: Arlene Satchell, "Lauderdale CVB ramps up LGBT summer marketing," Sun Sentinel, June 29, 2013.
Refer to the Article Summary. By marketing to the LGBT community, Fort Lauderdale and the CVB are trying to set the city apart from competing travel destinations. This is an example of
A) defending a brand name.
B) blocking entry into the market.
C) legally enforcing a trademark.
D) product differentiation.
Q:
The key characteristics of a monopolistically competitive market structure include
A) few sellers.
B) sellers selling similar but differentiated products.
C) high barriers to entry.
D) sellers acting to maximize revenue.
Q:
Recent research has shown that the first firm to enter a market often does not have a long-term advantage over later entrants into the market. An example that has been used to illustrate this is
A) McDonald's entry into the high-end coffee market.
B) Xerox, which became a generic term for making photocopies.
C) Abercrombie and Fitch, which was the first clothing company to market to young men.
D) the introduction of the first ballpoint pen in 1945.
Q:
A major difference between monopolistic competition and perfect competition is
A) the number of sellers in the markets.
B) the degree by which the market demand curves slope downwards.
C) that products are not standardized in monopolistic competition unlike in perfect competition.
D) the barriers to entry in the two markets.
Q:
A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?
A) The firm is protected by a first-mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs.
B) They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product.
C) Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products.
D) The firm's cost increases as it improves the product but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode although its market share remains secure.
Q:
Which of the following characteristics is common to monopolistic competition and perfect competition?
A) Firms produce identical products.
B) Entry barriers into the industry are low.
C) Each firm faces a downward -sloping demand curve.
D) Firms take market prices as given.
Q:
A firm that successfully differentiates its product or lowers its average cost of production creates
A) value for its customers.
B) entry barriers into its market.
C) a perfectly inelastic demand curve for its product.
D) economies of scale.
Q:
Which of the following characteristics is not common to monopolistic competition and perfect competition?
A) Firms act to maximize profit.
B) Entry barriers into the industry are low.
C) The market demand curve is downward -sloping.
D) Firms take market prices as given.
Q:
Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?
A) the ability to produce the product at a lower cost
B) changing consumer tastes
C) a rise in the price of a key input, for example, a rise in the price of oil leads to higher energy costs
D) the number of competitors in the market
Q:
The key characteristics of a monopolistically competitive market structure include
A) many small (relative to the total market) sellers acting independently.
B) all sellers sell a homogeneous product.
C) barriers to entry are strong.
D) sellers have no incentive to advertise their products.
Q:
If buyers of a monopolistically competitive product feel the products of different sellers are strongly differentiated, then the demand for each seller's product is
A) perfectly inelastic.
B) perfectly elastic.
C) relatively inelastic.
D) relatively elastic.
Q:
The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because
A) barriers to entry are very low.
B) there are many firms in the market.
C) products are differentiated.
D) entry into the market is blocked.
Q:
Draw a graph that shows the impact on a firm's profit when it increases spending on advertising and the increased advertising has no effect on the demand for a firm's product.
Q:
One reason why the coffeehouse market is competitive is that
A) demand for specialty coffee is very high.
B) it is trendy and therefore is likely to have a customer following.
C) barriers to entry are low.
D) consumption takes place in public.
Q:
Why would an organization as large as the National Football League (NFL) incur large legal expenses to try to prevent bars and restaurants from using their trademarked term "Super Bowl" in their advertising?
Q:
Why are many companies concerned about brand management?
Q:
Discuss the role of product differentiation and advertising in monopolistic competition.
Q:
What is the difference between the terms "marketing" and "advertising"?
Q:
Marketing refers to all the activities necessary for a firm to sell a product to a consumer.
Q:
Advertising is the action of a firm that is intended to maintain the differentiation of its product over time.
Q:
In the highly competitive fast-food restaurant market, brand name restaurants have a strong profit incentive to maintain high sanitary conditions and avoid any negative consequences.
Q:
A successful trademark is one that becomes a generic name for a product, for example, "Kleenex" has become a generic term for tissues.
Q:
One goal a firm tries to achieve when it advertises a product is to
A) make the demand curve for the product more elastic.
B) shift the demand curve for the product to the left.
C) make the demand curve for the product unitary elastic.
D) make the demand curve for the product more inelastic.
Q:
When a firm has been granted a trademark, which grants legal protection against other firms using the name of the product that has been granted the trademark, the firm
A) still faces the possibility that the name will become widely used and no longer associated with a specific company.
B) does not have to worry about legally enforcing the trademark; this is the responsibility of the legal system.
C) still must apply for a copyright and a patent to ensure that no other firm will use the product's name.
D) must spend an annual amount on advertising the product each year; the amount it must spend is negotiated by the firm and the government agency that grants the trademark.
Q:
Firms use two marketing tools to differentiate their products. What are these two tools?
A) lobbying and word of mouth
B) market research and demand estimation
C) brand management and advertising
D) consumer surveys and market experiments
Q:
Which of the following can a firm use to defend a successful product's brand name?
A) The firm can obtain a patent on the brand name.
B) The firm can apply for a trademark to ban other firm's from using the product's name.
C) The firm can increase the amount it spends on advertising for the product.
D) The firm can attempt to copyright the brand name.
Q:
________ describes the actions a firm takes to maintain the differentiation of its product over time.
A) Product differentiation.
B) Brand management
C) Aggressive marketing.
D) Advertising
Q:
Which of the following is true of trademarks?
A) A successful trademark is one that becomes a generic name for a product, for example, "Xerox" has become a generic term for making photocopies.
B) A successful trademark is one that allows consumers to immediately identify the source or producer of the product.
C) If a firm is granted a trademark, then no other firms can legally produce similar products for a given period of time.
D) If a firm is granted a trademark, then no other firms can legally sell in the same geographic area for a given period of time.
Q:
A franchise is
A) a firm that buys and operates a brand name business in a new market.
B) a firm with the legal right to sell a good or service in a particular area.
C) a firm with no competitors.
D) a branch of a national company.
Q:
To maximize their profits and defend those profits from competitors, monopolistically competitive firms must
A) lobby government to erect barriers to entry in their industries.
B) limit foreign competition in their markets by encouraging the government to impose tariffs and other trade restrictions.
C) differentiate their products.
D) achieve economies of scale.
Q:
Monopolistically competitive firms can differentiate their products
A) by producing at minimum efficient scale.
B) by producing where marginal revenue equals marginal cost.
C) by equating price and average total cost.
D) through marketing.
Q:
One of your classmates asserts that advertising, marketing research, and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying. Which of the following is not a response you might offer her?
A) Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences.
B) Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations.
C) Marketing research could allow a firm to identify new market opportunities and at least, in the short run, a firm can make a profit supplying products to this market segment.
D) If a firm successfully manages its brand, customers become less price sensitive as they perceive fewer substitutes for the firm's brand.
Q:
Although advertising raises the price of a monopolistic competitor's product, it does confer a benefit to consumers. Which of the following is a benefit to consumers?
A) Advertising acts as a barrier to entry.
B) Advertising engenders brand loyalty.
C) Advertising could provide consumers with useful information about new products and enable them to comparison shop.
D) Advertised products tend to be of higher quality so consumers feel special when they consume advertised products.
Q:
Which of the following statements is true about advertising by a monopolistically competitive firm?
A) Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products.
B) Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand.
C) Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product.
D) Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry.
Q:
Brand management refers to
A) picking a brand name for a new product that will attract attention.
B) the efforts to maintain the differentiation of a product over time.
C) efforts to reduce the cost of production.
D) selling the right to use a brand name in a particular market.
Q:
Juicy Couture has been successful in selling women's clothing using an unusual strategy.
According to an article in the Wall Street Journal, the key to the firm's strategy is to "limit distribution to maintain the brand's exclusive cachet, even if that means sacrificing sales, a brand-management technique once used only for high-end luxury brands." In 2006, Juicy clothes were sold in only four department stores: Neiman Marcus, Saks, Bloomingdale's, and Nordstrom. In 2006, its sales have more than quadrupled since 2002.
Source: Rachel Dodes, "From Track Suits to Fast Track," Wall Street Journal, September 13, 2006.
How does limiting the number of stores in which Juicy's products are sold contribute to its success?
A) By sacrificing sales, the company was able to focus on producing high quality products.
B) It enables Juicy to price its products at a premium and differentiate them from lower priced products.
C) It helps establish Juicy's products as luxury items favored by the very wealthy.
D) Maintaining the exclusivity of a product increases the demand for the product.
Q:
When a credit card company offers different services with its card, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to
A) create a barrier to entry for competing firms.
B) create a perfectly competitive market in which to sell its credit card.
C) convince customers that its card has greater value than those offered by rival firms.
D) shift the demand curve for competing firms to the right.
Q:
Nike has used Michael Jordan to create the impression that Air Jordan basketball shoes are superior to any other basketball shoes. Nike is attempting to
A) differentiate Air Jordan basketball shoes from other types of basketball shoes.
B) lower the marginal cost of producing Air Jordan basketball shoes.
C) increase its profit by raising the price of Air Jordan basketball shoes.
D) convince consumers that Air Jordan basketball shoes are no different from other basketball shoes favored by celebrities.
Q:
Which of the following is a disadvantage of trademarking a firm's product?
A) A trademark differentiates a firm's product.
B) A trademark conveys information about the product to the public.
C) A trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name.
D) A trademark does not affect demand for the firm's product.
Q:
A trademark is
A) a legal instrument which grants a firm the right to differentiate its product.
B) a legal right to position a firm's product in high-traffic public areas such as airports and post offices.
C) a patent on a firm's product.
D) a distinguishing attribute such as a sign or logo that allows a firm to uniquely identify its product.
Q:
Explain the similarities and differences between the long-run equilibrium for a perfectly competitive firm and a monopolistically competitive firm. Illustrate your answer with a graph demonstrating the long run equilibrium for the two types of firms.
Q:
Figure 13-19 Refer to Figure 13-19 to answer the following questions.
a. What is the productively efficient output?
b. What is the allocatively efficient output?
c. What is the amount of excess capacity?
d. Suppose the firm is currently producing 14 units. What happens if it increases output to 17 units?
Q:
Both the perfectly competitive firm and the monopolistically competitive firm produce at the output where marginal revenue equals marginal cost (MR = MC) but only the perfectly competitive firm achieves allocative efficiency. Explain why this is the case.
Q:
What is meant by "excess capacity"? How does it relate to consumer utility?
Q:
Does the fact that monopolistically competitive firms do not achieve productive efficiency or allocative efficiency mean that there is a significant loss in consumer welfare?
Q:
Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.
Q:
In the long-run equilibrium, both the perfectly competitive firm and the monopolistically competitive firm produce the output at which MR=MC and charge a price equal to the average total cost of production.
Q:
A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.
Q:
Monopolistically competitive firms achieve allocative efficiency but not productive efficiency.
Q:
Productive efficiency does not hold for a profit-maximizing, monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.
Q:
In the long-run equilibrium, a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.
Q:
One way by which firms differentiate their products is to find a market niche.
Q:
Consumers in monopolistically competitive markets face a tradeoff between paying prices greater than marginal costs and purchasing products that are more closely suited to their tastes.
Q:
What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?
A) Consumers pay higher prices but receive better quality goods compared to the output of perfectly competitive firms.
B) Consumers pay a price greater than marginal cost, but have the luxury of choices more suited to their tastes.
C) Consumers pay higher prices but the products are produced by highly efficient firms.
D) Consumers pay lower prices but have fewer choices.
Q:
In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?
A) Firms in perfect competition achieve productive and allocative efficiency while firms in monopolistic competition achieve neither allocative nor productive efficiency.
B) The only difference is that in a monopolistically competitive market there are many brands to choose from while in a perfectly competitive market there is one standard product.
C) Firms in perfect competition achieve productive efficiency while firms in monopolistic competition achieve allocative efficiency.
D) Firms in perfect competition achieve allocative efficiency while firms in monopolistic competition achieve brand efficiency.
Q:
If a monopolistically competitive firm has excess capacity
A) it has exhausted all economies of scale.
B) it is producing beyond the minimum efficient scale.
C) it is experiences diseconomies of scale.
D) it produces an output rate that places it on the negatively sloped portion of its average total cost curve.
Q:
Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a
perfectly competitive market in that in both markets, firms
A) produce at the minimum point of their average total cost curves.
B) produce where price equals marginal cost.
C) break even.
D) produce where price equals marginal revenue.
Q:
In long-run equilibrium, compared to a perfectly competitive market, a monopolistically competitive industry produces a ________ level of output and charges a ________ price.
A) higher; lower
B) lower; lower
C) lower; higher
D) higher; higher
Q:
If a significant number of smokers switch from smoking tobacco cigarettes to e-cigarettes, a company like NJOY will likely find its demand curve shifting to the ________ and its marginal revenue curve shifting to the ________ as more competitors enter the market.
A) right; right
B) right; left
C) left; right
D) left; left
Q:
Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being?
A) Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost.
B) Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes.
C) Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost.
D) Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets.
Q:
Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that monopolistically competitive markets are less efficient than perfectly competitive markets?
A) In contrast to perfectly competitive markets, neither allocative efficiency nor productive efficiency are achieved in monopolistically competitive markets.
B) In contrast to perfectly competitive markets, firms in monopolistically competitive markets earn economic profits in long-run equilibrium.
C) In contrast to perfectly competitive markets, firms in monopolistically competitive markets do not produce where price equals average total cost in long-run equilibrium.
D) In contrast to perfectly competitive markets, firms in monopolistically competitive markets can charge a price greater than average total cost in the short run.
Q:
Only one of the following statements is correct. The statements compare perfectly competitive (PC) markets and monopolistically competitive (MC) markets. Which statement is correct?
A) Productive efficiency is achieved in both PC and MC markets. Allocative efficiency is achieved only in MC markets.
B) Allocative efficiency is achieved in both PC and MC markets. Productive efficiency is achieved only in PC markets.
C) Productive efficiency and allocative efficiency are both achieved in PC markets. Neither is achieved in MC markets.
D) Allocative efficiency is achieved only in PC markets. Productive efficiency is achieved only in MC markets.