Q&A Hero

Q: Firms in a monopolistically competitive industry produce a. homogeneous goods and services. b. differentiated products. c. monopolistic goods only. d. only industrial productsand no consumer products. e. only consumer productsand no industrial products.

Q: Which of the following is the best example of a firm operating in a monopolistically competitive market? a. a Nebraska corn farmer b. Applebees, a casual dining restaurant c. the U.S. Postal Service d. Chevron, a gasoline station e. electric companies prior to deregulation

Q: Which of the following is the best example of a monopolistically competitive market?a. corn b. gasoline c. electric utilitiesd. retail clothing storese. wheat

Q: Which of the following most closely approximates the conditions of monopolistic competition? a. the market for Grade A sorghum (milo), which is characterized by many firms producing a homogeneous product b. the restaurant industry, which is characterized by many firms producing differentiated products in an industry with free entry and exit c. a cable television service, where a licensed supplier competes with firms offering satellite service d. the market for jumbo aircraft, where one major domestic firm competes with one major foreign firm e. the tobacco market, which is characterized by a few firms producing a differentiated product with difficult entry

Q: Which of the following is the best description of monopolistic competition? a. easy entry, low markup b. barriers to entry, high markup c. horizontal demand curve for the firm d. firm has no control over price e. barriers to entry, low markup

Q: A monopolistically competitive market is characterized by a. many small sellers selling a differentiated product. b. a single seller of a unique product that has few or no substitutes. c. very high barriers to entry. d. many small sellers selling an identical product. e. a few firms producing either differentiated or identical products.

Q: One critical characteristic of monopolistic competition is that a. one firm dominates the industry. b. a few firms collude with each other by agreeing on price. c. a few firms compete without agreeing on price. d. there are many small firms in the industry. e. there is one large firm in the industry, but it has no control over the price.

Q: Which of the following industry structures is best associated with low barriers to entry?a. monopoly b. a cartel c. oligopolyd. monopolistic competitione. a collusive industry

Q: If one were to discuss why the term monopolistic competition is used, the best description would be that the industry is monopolistic because it a. has high barriers to entry, but is competitive because it has many firms. b. has low barriers to entry, but is competitive because it has few firms. c. has product differentiation, but is competitive because it has many firms. d. has a monopoly, but is competitive because there are low barriers to entry, meaning it has potential rivals. e. holds patents, but is competitive because other firms might invent similar patentable products.

Q: CHAPTER 12: Monopolistic Competition and AdvertisingMonopolistic competition means thata. firms are in a monopoly, but they compete.b. firms are in perfect competition, but they collude similar to monopolies.c. firms differentiate their output, which makes them price makers, but barriers to entry are low or nonexistent.d. oligopoly firms collude until they become monopolies.e. firms have downward-sloping demand.

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Q: SHORT ANSWER1. Define market power.

Q: In the context of market structures, franchising fees represent which aspect for monopolistic competition?a. number of sellers b. product differentiation c. barriers to entryd. product substitutese. marginal cost

Q: Because monopolistic competitors each advertise, potential realized gains oftena. cancel each other out. b. increase in magnitude. c. decrease in magnitude.d. hamper product differentiation.e. force some firms out of the industry.

Q: Advertising causes a(n) ________ shift of the LRATC curve. The goal of successful advertising is to generate enough increase in demand to produce at a ________ point on the new LRATC curve.a. downward; lower b. downward; higher c. upward; lowerd. upward; highere. leftward; higher

Q: Brand labels and packaging can convey status or quality, even if there is little to no physical difference in two competing products. If we are to assume that consumers are rational decision makers, this indicates that brand labels and packaging create additional ________ for a buyer.a. envy b. loyalty c. wealthd. valuee. substitutes

Q: The primary purpose of advertising for a monopolist is to increasea. demand. b. differentiation. c. elasticity.d. price.e. variety.

Q: Successful advertising can increase demand across a wide spectrum of consumers, but it happens unevenly. Some consumers respond more dramatically than others to advertising. This explains the change in ________ of the demand curve that occurs after an advertising campaign.a. elasticity b. direction c. priced. quantitye. rigidity

Q: Why might a purely competitive industry advertise, even if individual firms do not? a. The industry can selectively promote firms and force some out of business. b. An industry can advertise to promote its products without shifting the average total cost curve for individual firms. c. The industry hopes to boost overall demand for the substitute goods. d. An industry cannot advertise because it is not an actual business. e. An industry would never advertise in a purely competitive market.

Q: Despite ________ prices than can be reached under perfect competition, monopolistic competition results in ________ variety than can be reached in any other market.a. higher; less b. higher; greater c. lower; lessd. lower; greatere. more inefficient; more excessive

Q: Preston shops frequently at his favorite store, Fully Clothes. He and other like-minded consumers are willing to pay a much higher price than they would at competing stores because Fully Clothes best suits their particular preferences. Poor management causes Fully Clothes to go out of business. What is likely to happen to Fully Clothes customers demand curves? a. a movement along the curve to the right b. a movement along the curve to the left c. no change due to lack of product differentiation d. a shift of the curve to the right e. a shift of the curve to the left

Q: As product differentiation decreases, ________ increases.a. markup b. excess capacity c. demand elasticityd. demand inelasticitye. marginal cost

Q: Monopolistically competitive firms are troublesome to regulate for all of the following reasons, EXCEPT a. they comprise a large proportion of the economy. b. their market and political power renders them virtually untouchable. c. it could result in fewer choices for consumers. d. regulating prices only magnifies the inefficiency typical of these firms. e. the government may be forced to subsidize firms to keep them in business.

Q: The mayor of Stockville is seeking reelection and isnt buying into the health food hype. He believes that french fries are necessary for the happiness of his citizens, but the fast-food restaurants in his city are charging too much for their products. In an effort to shore up election support, the mayor institutes a price ceiling on french fries. Within two years, half of the fast-food restaurants close in Stockville. What is the likely cause? a. The price ceiling generated long-run economic losses. b. The price ceiling generated long-run economic profits. c. A neighboring town is subsidizing french fry producers. d. A french fry price ceiling without a proportional hamburger price floor created an untenable production balance. e. A spike in french fry consumption resulted in a long-run decline in health, drastically reducing demand for fast food.

Q: Productive ________ is/are considered an indicator of social benefit.a. allocation b. efficiency c. capacityd. marginse. demand

Q: Which term best defines the pricing difference between monopolistic competition and competitive markets?a. differentiation b. discrimination c. markupd. markdowne. inequity

Q: A markup is only possible when a firm enjoys some degree ofa. profit. b. market power. c. excess capacity.d. efficient scale.e. substitutability.

Q: The gap between the actual quantity produced by a monopolistically competitive firm and the optimal quantity in a competitive market is known asa. excess capacity.b. insufficient capacity. c. flux capacity.d. inefficient scale.e. markup.

Q: When economists say that monopolistic competition drives long-run profits to zero, it implies that the demand curve is ________ to the average total cost curve.a. secant b. tangent c. paralleld. perpendiculare. asymmetrical

Q: Entry by firms in the long run means that, for a monopolistic competitor, pricea. increases. b. decreases. c. remains the same.d. exceeds marginal revenue.e. always produces a loss.

Q: With monopolistic competition, firms have demand curves that are ________ the lowest possible cost.a. unrelated to b. correlated with c. identical tod. abovee. below

Q: Examining the cost, revenue, and demand curves for a monopolistic competitor reveals that, at optimal output, the demand curve lies above the average total cost curve. Which of the following is true? a. There is economic profit in the long run. b. There is an economic loss in the long run. c. Firms will enter the industry in the long run. d. Firms will exit the industry in the long run. e. There is not enough information because demand is an imperfect benchmark for measuring profitability.

Q: Monopolistic competitors do not enjoy the ________ demand of perfect competition. As a result, firms will never produce at ________ average total cost.a. relatively elastic; maximum b. perfectly elastic; minimum c. relatively elastic; maximumd. relatively elastic; minimume. perfectly inelastic; minimum

Q: Low barriers to entry and exit mean that in the ________ run for monopolistically competitive firms, it is ________ to generate economic profit.a. short; possible b. short; impossible c. long; possibled. long; impossiblee. long; likely

Q: Demand elasticity for monopolistically competitive firms is best described as a. perfectly elastic, because market competition eliminates pricing power. b. perfectly inelastic, because differentiation is awarded with monopoly pricing. c. monopolistically elastic, as the forces of competition mitigate the market power created by significant entry barriers. d. competitively inelastic, as the forces of competition generate demand that is not sensitive to changes in price. e. relatively elastic, because differentiation offsets the perfect elasticity of a perfectly competitive market.

Q: Use the following excerpt from a campus-wide announcement about a concert at the University of West Georgia (UWG) to answer the following questions:The Band Perry [a Grammy-nominated country music act] will perform live at the University of West Georgia Coliseum on Sunday, April 22, as part of its Purveyors of Performance Tour 2012 . . . Prices are $10 in advance or $15 on the day of the show for those with a UWG [Student] ID, and $20 in advance or $25 on the day of the show for the general public.Firms are most likely to engage in price discrimination ifa. the goods can be resold in the market without any loss in value or quality.b. the goods can be resold in the market, but there is a large loss in the value or quality of the product.c. the goods cannot be resold in the market.d. consumers all have a similar reservation price for the goods produced.e. consumers of all ages have similar preferences for the goods produced.

Q: Which price discrimination condition was satisfied by requiring students to show an ID card for an initial ticket purchase? a. The concert promoter was able to encourage the resale of the product or service to another student. b. The concert promoter was able to distinguish easily among groups of buyers with different price elasticities of demand. c. The concert promoter was able to prevent the resale of the product or service to another consumer who is willing to pay more. d. The concert promoter was able to distinguish easily among groups of sellers with different price elasticities of supply. e. The concert promoter was able to distinguish easily between true fans of the Band Perry and those who just wanted to see a cheap concert.

Q: Reese Witherspoon plans to visit her hometown of New Orleans, Louisiana. When her assistant checked the hotel reservation website, there were four published rates available, which are summarized in the following table. Use this table to answer the following questions:Best-available rate $28990-day advance purchase $230AARP member rate $260Military/government rate $135Why would the hotel require a guest to provide appropriate identification to receive the American Association of Retired Persons (AARP) member rate, the military rate, or the government rate?a. to prevent resale of discounted rooms to other buyers who are not eligible for the discounted priceb. to honor those who serve in the military and offer support to the troopsc. to encourage active membership in AARPd. to ensure that distinguished government guests are assigned the appropriate costse. to limit the number of patrons who receive each type of rate

Q: Hotwire.com, an online travel company specializing in cheap and discounted hotel rates and airfares, often asks customers if their travel dates are flexible when pricing potential bookings. This practice helps Hotwire.com practice price discrimination by allowing it to a. easily distinguish between different groups of buyers. b. book reservations for customers who are most likely to travel before those who are less likely to travel. c. post higher prices initially and then lower the price based on room availability. d. determine which customers are simply comparison shopping and which ones are ready to make a purchase. e. offer high prices to customers with flexible travel dates and low prices to those who are on a fixed income.

Q: Which of the following is necessary for price discrimination to occur? a. The firm must be able to produce the good at a low cost. b. The firm needs to decrease profits. c. The market allows for reselling goods. d. Consumers preferences are hidden from the firm. e. The firm is able to distinguish among groups of buyers easily.

Q: If a firm is unable to distinguish which of its buyers has inelastic demand and which has a relatively elastic demand, then the firm will be unable to price discriminate because it will a. not know how much of the product to offer for sale. b. not know enough about its customer base to prevent resale. c. not know which price to charge which customer. d. not know how many of its customers will buy the product when it is offered for sale. e. be unable to predict how much of its sales will be retained as profit.

Q: Airlines require every passenger with a ticket to have a matching, government-issued photo identification. Price discrimination is made easier because a. this practice prevents a passenger who purchased a discounted fare from reselling that ticket to another customer who is willing to pay more. b. this practice allows airlines to determine the different personal characteristics of their buyers at a zero cost. c. this type of price discrimination is mandated and supported by the federal government. d. customers acknowledge that they are exchanging higher ticket prices for decreased safety regulations. e. customers are then willing to divulge relevant information to the airline about their reservation price.

Q: A firm cannot price discriminate if it a. operates in a competitive environment. b. has a downward-sloping demand curve. c. has a business that is regulated. d. has perfect information about market demand. e. can prevent resale of its product.

Q: Which of the following statements is true? a. Firms that can identify two types of consumers can price discriminate perfectly. b. Firms can price discriminate only if there is zero competition in the market. c. Firms that price discriminate will not reach higher profits. d. Firms that can prevent reselling may be able to engage in price discrimination. e. Firms can usually price discriminate if they are in a perfectly competitive market.

Q: Price discrimination allows firms to make more money by partitioning their customers into at least two distinct groups, those who a. the firm wants to retain as customers and those who will decide to buy elsewhere. b. have a similar elasticity of demand and those who are unaware of their demand elasticity. c. will get a discount and those who are willing to pay more. d. differ from their usual customer type and those with characteristics common to their customer base. e. are willing to pay more and those who buy whenever they see the word discount.

Q: Which of the following conditions is a requirement for price discrimination? a. There is no reselling allowed in the market. b. People have homogenous preferences. c. Firms face different costs of production. d. There are multiple firms in the market. e. There is only one firm in the market.

Q: One reason that firms may be unable to utilize price discrimination as a viable strategy is because a. it is always illegal to price discriminate. b. firms are unwilling to maximize profits. c. most consumers reservation prices are well publicized. d. firms are unable to prevent resale of the product they offer for sale. e. firms are unlikely to increase profits after paying for increased marketing costs.

Q: For a firm to be able to practice price discrimination, it must be aa. price maker. b. cost producer. c. price practitioner.d. price taker.e. profit maker.

Q: A price maker is a firm that a. sets the prices that the market makes. b. has a price that covers all of its costs. c. sets prices that maximize consumer surplus. d. sets prices equal to that of the market. e. has some market power.

Q: In 1996, Victorias Secret shipped different catalogs to customers based on their buying habits. Frequent customers received catalogs with lower prices, whereas new customers received catalogs with higher prices for those same items. Victorias Secret was practicinga. monopolistic competition. b. reservation pricing. c. price retention.d. efficient pricing.e. price discrimination.

Q: Which of the following best describes price discrimination? a. charging different prices to different people and the prices are perceived as unfair and harmful b. a firm selling the same good at more than one price to different groups of customers c. when differences in cost are reflected by differences in price d. commission of an act that is always illegal and not beneficial to buyers or sellers e. a practice available only to competitive, price-taking firms

Q: A firm can be identified as practicing price discrimination when a. consumers engage in comparison shopping to find the lowest advertised price. b. firms behave as price takers, whereas consumers react with price-making behavior. c. buyers in a perfectly competitive market are able to influence the prices that firms set. d. producers pass on differences in costs to those price-conscious consumers willing to buy in bulk. e. producers set different prices for distinct groups of consumers, despite selling identical products to each group.

Q: Price discrimination exists when a firm is able to sell the same good at more than one price to different groups ofa. producers. b. firms. c. consumers.d. promoters.e. commodities.

Q: CHAPTER 11: Price DiscriminationPrice discrimination exists when a firm sells ________ goods at more than one price to ________ groups of customers.a. different; similar b. existing; distinct c. discounted; larged. identical; differente. limited; restricted

Q: Which of the following is a true statement about perfect price discrimination? a. If the ability to discriminate maximizes, the overall social welfare minimizes. b. The transfer of surplus from consumer to producer results in an unequitable outcome. c. Firms are able to determine the exact maximum willingness to pay for most consumers. d. Social welfare is determined by subtracting producer surplus from consumer surplus. e. Deadweight loss does not exist.

Q: From an initial examination, price discrimination may not seem like a social good because ________ is transferred from consumer to producer, but the overall benefit for society ________.a. deadweight loss; decreases b. deadweight loss; increases c. market power; multipliesd. surplus; decreasese. surplus; increases

Q: How does price discrimination help us understand how many markets actually function? a. All firms will practice price discrimination unless a government prohibits the practice. b. Monopolistic competition is rare, so economists are able to focus in on the few firms that engage in the practice. c. Instances of perfectly competitive markets and monopoly are rare. d. Antidiscrimination laws are widespread, so models explaining price discrimination help us better understand markets that we are unable to witness. e. Monopolistic competition is the most common market form, but it is the only one that does not engage in price discrimination.

Q: According to economists, extreme couponing is not worth the effort if the ________ exceeds the ________ from the coupons, when time is taken into account.a. waste; benefit b. opportunity cost; savings c. savings; benefitd. savings; timee. efficiency; cost