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Scenario 16-1 Escape Vacations has recently announced intentions to build a new hotel/resort complex in Phoenix, AZ. Assume that the hotel/resort market in Phoenix is characterized by monopolistic competition. -Refer to Scenario 16-1.As a result of the new Escape Vacations hotel/resort,existing hotels,motels,and lodging facilities in Phoenix are likely to experience a


A) product-variety externality, which harms producers.
B) product-variety externality, which benefits producers.
C) business-stealing externality, which harms producers.
D) business-stealing externality, which benefits producers.

E) All of the above
F) B) and C)

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Monopolistic competition differs from perfect competition because in monopolistically competitive markets


A) there are barriers to entry.
B) all firms can eventually earn economic profits.
C) each of the sellers offers a somewhat different product.
D) strategic interactions between firms are important.

E) A) and B)
F) A) and C)

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Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. -Refer to Table 16-3.What is the concentration ratio for Industry D? A) approximately 48% B) approximately 54% C) approximately 60% D) approximately 66% -Refer to Table 16-3.What is the concentration ratio for Industry D?


A) approximately 48%
B) approximately 54%
C) approximately 60%
D) approximately 66%

E) B) and D)
F) B) and C)

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In which of the following market structures do firms produce the welfare-maximizing level of output?


A) perfect competition
B) monopolistic competition
C) monopoly
D) Both a and b are correct.

E) B) and C)
F) All of the above

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In which of the following market structures is(are) there a large number of sellers? (i) monopolistic competition (ii) perfect competition (iii) oligopoly


A) (i) and (ii) only
B) (ii) and (iii) only
C) (ii) only
D) (i) , (ii) , and (iii)

E) A) and D)
F) A) and C)

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Table 16-7 A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to $10. Table 16-7 A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to $10. -Refer to Table 16-7.If the firm has a constant marginal cost of $5 per unit,which of the following would you expect to occur in the long run in this market? A) New firms will enter the market and profits for firms in the market will fall. B) New firms will enter the market and profits for firms in the market will rise. C) Firms will leave the market and profits for firms that remain in the market will rise. D) Firms will leave the market and profits for firms that remain in the market will fall. -Refer to Table 16-7.If the firm has a constant marginal cost of $5 per unit,which of the following would you expect to occur in the long run in this market?


A) New firms will enter the market and profits for firms in the market will fall.
B) New firms will enter the market and profits for firms in the market will rise.
C) Firms will leave the market and profits for firms that remain in the market will rise.
D) Firms will leave the market and profits for firms that remain in the market will fall.

E) None of the above
F) B) and D)

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Examples of monopolistically competitive markets include the markets for


A) restaurants and furniture.
B) wheat and corn.
C) postage stamps and wooden pencils.
D) All of the above are correct.

E) B) and D)
F) C) and D)

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Scenario 16-3 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-3.If the marginal cost of producing this good is 0,what price would a profit-maximizing monopolist charge for the product?


A) P = 0
B) P = 5
C) P = 10
D) P = 20

E) B) and C)
F) None of the above

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When a monopolistically competitive firm raises its price,


A) quantity demanded falls to zero.
B) quantity demanded declines but not to zero.
C) the market supply curve shifts outward.
D) quantity demanded remains constant.

E) C) and D)
F) None of the above

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Monopolistic competition is characterized by many buyers and sellers,product differentiation,and free entry.

A) True
B) False

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Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. -Refer to Table 16-2.What is the concentration ratio for Industry D? A) about 13% B) about 35% C) about 45% D) about 63% -Refer to Table 16-2.What is the concentration ratio for Industry D?


A) about 13%
B) about 35%
C) about 45%
D) about 63%

E) B) and C)
F) A) and D)

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Figure 16-9 The figure is drawn for a monopolistically-competitive firm. Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9.At what quantity of output does average revenue exceed marginal revenue by $66.66? A) at 100 units of output B) somewhere between 100 and 133.33 units of output C) at 133.33 units of output D) at 154.92 units of output -Refer to Figure 16-9.At what quantity of output does average revenue exceed marginal revenue by $66.66?


A) at 100 units of output
B) somewhere between 100 and 133.33 units of output
C) at 133.33 units of output
D) at 154.92 units of output

E) A) and B)
F) A) and C)

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Figure 16-5 Figure 16-5 -Refer to Figure 16-5.Which of the graphs shown would be consistent with a profit maximizing firm in a monopolistically competitive market that is earning a positive profit? A) panel a B) panel b C) panel c D) panel d -Refer to Figure 16-5.Which of the graphs shown would be consistent with a profit maximizing firm in a monopolistically competitive market that is earning a positive profit?


A) panel a
B) panel b
C) panel c
D) panel d

E) B) and D)
F) All of the above

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Professional organizations and producer groups have an incentive to


A) restrict advertising in order to enhance competition on the basis of price.
B) restrict advertising in order to reduce competition on the basis of price.
C) encourage advertising in order to reduce competition on the basis of price.
D) encourage advertising in order to enhance competition on the basis of price.

E) A) and B)
F) A) and C)

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Evidence suggests that,in markets with differentiated products but little advertising,


A) consumers are not confused by conflicting signals.
B) firms are generally less profitable.
C) markets are less efficient.
D) consumers make better choices.

E) A) and B)
F) None of the above

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Results of the study done by Lee Benham on advertising for eyeglasses would suggest that


A) brand loyalty and market power in the eyeglass market was likely to be more pervasive in states that allowed advertising.
B) eyeglass sales were more profitable in states that allowed advertising.
C) optometrists would not be supportive of advertising restrictions.
D) optometrists would enthusiastically endorse advertising restrictions.

E) None of the above
F) C) and D)

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Which of the following statements is correct?


A) Firms in monopolistic competition and monopoly can earn economic profits in both the short run and the long run.
B) Both perfectly competitive and monopolistically competitive firms charge a price equal to marginal cost.
C) Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.
D) Both perfectly competitive and monopolistically competitive firms produce the welfare-maximizing level of output.

E) All of the above
F) B) and D)

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Figure 16-4 Figure 16-4 -Refer to Figure 16-4.Panel b is consistent with a firm in a monopolistically competitive market that is A) not in long-run equilibrium. B) in long-run equilibrium. C) producing its efficient scale of output. D) earning a positive economic profit. -Refer to Figure 16-4.Panel b is consistent with a firm in a monopolistically competitive market that is


A) not in long-run equilibrium.
B) in long-run equilibrium.
C) producing its efficient scale of output.
D) earning a positive economic profit.

E) C) and D)
F) A) and C)

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Keebleco knows that it produces and sells very tasty crackers.Nabiscer knows that it produces and sell dull crackers.According to the signaling theory of advertising,


A) both Keebleco and Nabiscer have incentives to spend large amounts of money on advertising their crackers.
B) Keebleco has an incentive to spend a large amount of money on advertising its crackers, but Nabiscer does not.
C) Nabiscer has an incentive to spend a large amount of money on advertising its crackers, but Keebleco does not.
D) neither Keebleco nor Nabiscer has an incentive to spend a large amount of money on advertising their crackers.

E) All of the above
F) B) and C)

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A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium has


A) minimized average total cost.
B) chosen to produce where demand is unitary elastic.
C) produced the efficient scale of output.
D) chosen a quantity of output where average revenue equals average total cost.

E) B) and C)
F) None of the above

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