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Homework answers / question archive / University of Waterloo MICROECONO AFM101 CHAPTER 13 1)What is product differentiation? Product differentiation______________
University of Waterloo
MICROECONO AFM101
CHAPTER 13
1)What is product differentiation? Product differentiation______________.
A. occurs when firms in perfect competition produce different brands of the same product
B. is making a product that is a close substitute but not a perfect substitute for the products of other firms
C. is improving the quality of the product
D. occurs when a firm in perfect competition lowers the price of the good it produces to increase market share
2) All the existing firms in a monopolistically competitive market advertise, and the number of firms in the market increases.
The demand for any one firm's product decreases such that the price-maximizing quantity for any one firm decreases. Complete the sentences.
The demand faced by any one firm becomes elastic.
A. unit
B. more
C. less
The profit-maximizing price and the markup .
A. increases; decreases
B. decreases; decreases
C. decreases; increases
D. increases; increases
3) Complete the sentence.
In the long run, a firm in monopolistic competition .
A. is inefficient because firms always make zero economic profit
B. produces a profit-maximizing output that is less than its efficient scale
C. produces at its efficient scale
D. is efficient because all firms make zero economic profit
4)
A. Advertising makes demand less elastic.
B. If advertising is a signal, it doesn't need any specific product information.
C. The firms that are most likely to produce expensive and hard to miss advertising are firms that produce inferior products.
D. Advertising increases the demand for a firm's product.
5) Which of the following is a characteristic of monopolistic competition? In monopolistic competition .
A. each firm has a large market share
B. collusion is possible
C. each firm has limited power to influence the price of its product
D. a single firm can dictate market conditions
6) Advertising expenditures are costs and the per unit cost as production increases.
A. fixed; increases
B. variable; does not change
C. variable; increases
D. fixed; decreases
7) In the short run, a firm in monopolistic competition .
A. can incur an economic loss
B. cannot incur an economic loss because it will shut down at the point at which it breaks even
C. faces a demand curve that must lie above the average total cost curve at the profit-maximizing quantity
D. will produce the quantity at which price equals average total cost
8) The graph shows the marginal cost curve, average total cost curve, demand curve, and marginal revenue curve of a firm in monopolistic competition.
Draw a point at the firm's profit-maximizing output and price. Draw a shape to show the firm's economic profit or loss. Label it. In the short run, a firm in monopolistic competition .
A. breaks even
B. makes its output and price decision just like a monopoly firm does
C. always makes an economic profit
D. incurs an economic loss
9)
A. Firms in perfect competition are more likely to have a brand name than firms in monopolistic competition.
B. A brand name provides an incentive to the producer to achieve high and consistent quality.
C. A brand name is a variable cost.
D. A brand name creates an efficient market.
10) Complete the sentences.
If in the short run, firms in monopolistic competition , then in the long run, new firms will enter the market.
A. break even
B. incur an economic loss
C. make an economic profit
The the good produced by each individual firm will .
A. demand for; increase
B. demand for; decrease
C. supply of; increase
D. supply of; decrease
In the new long-run equilibrium, firms .
A. continue to make a positive economic profit
B. make zero economic profit
C. can make an economic profit or incur an economic loss
11) Which of the following industries is an example of monopolistic competition?
A. shampoo
B. strawberries
C. electricity
D. airline travel between Boston and New York
12) In monopolistic competition in the long run, firms .
A. make zero economic profit and have excess capacity
B. make an economic profit and have excess capacity
C. incur an economic loss and require more capacity
D. make zero economic profit and require more capacity
13) The graph shows a firm's average total cost curves with advertising and without advertising. Without advertising, the firm sells 25 pairs of shoes a day.
If the firm advertises and sells 100 pairs a day, how do costs change? If the firm advertises and sells 100 pairs a day, .
A. total cost and average total cost increase
B. total fixed cost does not change
C. total cost increases, but average total cost decreases
D. total cost and average total cost decrease
CHAPTER 13 B
1) Consider the market for running shoes.
Draw a firm's average total cost curve with no advertising. Label it ATC0. Draw the firm's average total cost curve with advertising. Label it ATC1.
If the firm successfully advertises, the quantity produced increases such that .
A. total cost increases and average total cost increases
B. total fixed cost decreases
C. total cost increases and average total cost decreases
D. total cost decreases and average total cost increases
2) The graph shows the marginal cost curve, average total cost curve, demand curve, and marginal revenue curve of a firm in monopolistic competition in long-run equilibrium.
Draw a point at the firm's profit-maximizing output and price. Label it 1.
Draw a point to show the firm's efficient scale and its average total cost at that output. Label it 2.
Draw a horizontal arrow that indicates the firm's excess capacity. Label it.
The firm's markup is the amount by which at the equilibrium quantity.
A. price exceeds marginal cost
B. average total cost exceeds average variable cost
C. marginal cost exceeds average total cost
D. price exceeds average total cost
3) The graph shows the cost curves, demand curve, and marginal revenue curve of a firm in monopolistic competition.
What is the profit-maximizing output and price? What is the economic profit?
This firm maximizes profit by producing printers a day and setting the price at a printer.
A. 100; $80
B. 150; $70
C. 150; $40
D. 175; $65
4) Which of the following is a characteristic of monopolistic competition? In monopolistic competition, .
A one firm can dictate market conditions
B. no one firm's actions directly affect the actions of the other firms
C. only a few firms compete, and each firm supplies a large part of the total industry output
D. collusion is possible and highly likely to occur
5) Which of the following industries is an example of monopolistic competition?
A. audio and video equipment
B. hydroelectric distribution
C. newspapers in your town
D. wheat
6) Because of product differentiation, a firm in monopolistic competition faces demand curve for the good it produces.
A. an upward-sloping
B. a downward-sloping
C. a vertical
D. a horizontal
7)
A. The efficient degree of product variety is the one for which the marginal social benefit of product variety equals its marginal social cost.
B. The firm can incur an economic loss or make an economic profit in the short run but in the long run the firm makes an economic profit or breaks even.
C. Monopolistic competition can never be considered to be efficient.
D. The firm's markup results from the firm producing the quantity at which marginal cost does not equal marginal revenue.
8)
A. Brand names provide little information to consumers.
B. Monopolistic competition is an efficient market because of the presence of advertising and brand names.
C. A brand name gives the producer an incentive to create below-standard products after customers become loyal.
D. To determine efficiency in monopolistic competition, the opportunity cost of the additional information provided through advertising and brand names must be weighed against the gain to the consumer.
9) Advertising .
A. is effective only when it is variable cost, increasing as more units of the advertised good are sold
B. eliminates excess capacity
C. always increases the demand for the firm doing the advertising
D. does not need any specific product information to be effective
10) The dry cleaning industry is in monopolistic competition.
In the short run, the profit-maximizing price is $10 per item and the average total cost is $6 per item. In the long run, the profit-maximizing price is $8 per item.
In the long run, what is the economic profit of a firm in the dry cleaning industry? In the long run, the economic profit of a firm in the dry cleaning industry is $ 0
11) Compare markup and price with no advertising to markup and price with successful advertising. Relative to successful advertising, with no advertising the markup is and the price is .
A. small; low
B. small; high
C. large; high
D. large; low
12) In the short run, a monopolistically competitive firm .
A. either earns an economic profit or breaks even
B. may incur an economic loss
C. incurs an economic loss if it fails to produce the quantity at which marginal revenue equals marginal cost
D. will leave the industry if it is incurring an economic loss
13) Advertising expenditures increase the costs of a above those of a .
A. perfectly competitive firm; monopolistically competitive firm
B. monopolistically competitive firm; perfectly competitive firm or a monopoly
C. perfectly competitive firm; monopoly
D. monopoly; perfectly competitive firm
