Question 1

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?

Accepted Answer

The answer of Figure 13-19 
-Refer to Figure 13-19 to...

Question 2

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.

Accepted Answer

By offering additional services like travel insurance or product insurance, the credit card company is attempting to differentiate itself from its competitors and convince potential customers that its card offers greater value. This can help increase demand for the company's card, while also creating a barrier to entry for competing firms who may struggle to offer similar services. However, the goal is not necessarily to create a perfectly competitive market or shift demand curves for competitors.

Question 3

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.

Accepted Answer

The answer of Both the perfectly competitive firm and the...

Question 4

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.

Accepted Answer

Advertising can make the demand for a monopolistic competitor's product more inelastic by creating brand loyalty or perceived differences between the product and its substitutes. In contrast, advertising has no effect on a perfect competitor's demand because their products are homogeneous. However, monopolistically competitive firms do make a positive economic profit in the short run, so advertising can increase their profits during that time.

Question 5

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.

Accepted Answer

Monopolistically competitive firms differentiate their products to make them appear unique and valuable to consumers, which allows them to charge higher prices and earn higher profits. A and B are incorrect because erecting barriers to entry and limiting foreign competition would typically require government intervention, which is not necessary in a monopolistically competitive market. D is incorrect because achieving economies of scale is more relevant for firms in perfectly competitive markets or natural monopolies, not monopolistically competitive firms.

Question 6

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.

Accepted Answer

A trademark is a distinguishing attribute such as a sign or logo that allows a firm to uniquely identify its product. It is not a legal instrument for positioning a product in high-traffic public areas or a patent on a firm's product.

Question 7

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.

Accepted Answer

Brand management involves the efforts to maintain the differentiation of a product over time. This includes developing brand strategies, maintaining consistent messaging and branding across various platforms, and continuously monitoring and adapting the brand based on consumer feedback and market changes. It is not focused solely on picking a brand name, reducing production costs, or selling the rights to use a brand name.

Question 8

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.

Accepted Answer

The answer of Explain the similarities and differences between the...

Question 9

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.

Accepted Answer

The answer of A franchise is
A) a firm that buys...

Question 10

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.

Accepted Answer

Monopolistically competitive firms can differentiate their products through marketing, such as advertising, packaging, and branding. These efforts can help create a perceived difference between their product and their competitors' products, making consumers willing to pay a higher price for that particular product.

Question 11

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.

Accepted Answer

The answer of In the long-run equilibrium, both the perfectly...

Question 12

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.

Accepted Answer

Nike is attempting to create a unique identity and stand out in the market by differentiating Air Jordan basketball shoes from other types of basketball shoes. Michael Jordan's image and association with the brand create an emotional appeal that sets it apart from other brands. This differentiation can allow Nike to charge a higher price and increase its profits.

Question 13

Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.

Accepted Answer

The answer of Economists believe that consumers would be better...

Question 14

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.

Accepted Answer

Advertising can provide consumers with useful information about new products and enable them to comparison shop. This benefit can help consumers make more informed decisions and potentially save them money by choosing the best product for their needs. A and B are incorrect as they both relate to the benefits to the monopolistic competitor, rather than the consumers. D is incorrect as there is no evidence that advertised products tend to be of higher quality, and the idea that consumers feel special when they consume advertised products is not a concrete benefit.

Question 15

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?

Accepted Answer

The answer of Does the fact that monopolistically competitive firms...

Question 16

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.

Accepted Answer

Advertising and brand management go beyond just gathering information about customer preferences and can help firms differentiate themselves from competitors and create loyal customers. This can be accomplished through creating a strong brand image and marketing campaigns that communicate a unique value proposition to customers. Additionally, these activities can create barriers to entry for competitors, which can help protect the firm's market share and profitability.

Question 17

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.

Accepted Answer

If a trademark becomes so widely used that it becomes a generic term for a particular type of product, it can no longer be protected as a brand name under trademark law. This can lead to loss of exclusivity and competitive advantage for the firm. The other options (A, B, D) describe advantages or neutral aspects of trademarking a firm's product.

Question 18

A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.

Accepted Answer

A monopolistic competitor faces competition from similar products in the market and if it cannot differentiate its product, it may lose customers to competitors who offer similar products at lower prices. Therefore, the firm needs to constantly innovate and differentiate its products to maintain a competitive edge and earn profits in the long run. If the firm fails to do so, it will eventually incur losses and may even have to exit the market.

Question 19

What is meant by "excess capacity"? How does it relate to consumer utility?

Accepted Answer

The answer of What is meant by "excess capacity"? How...

Question 20

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.

Accepted Answer

The answer of Juicy Couture has been successful in selling...

Quiz 13: Monopolistic Competition: the Competitive Model in a More Realistic Setting

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

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.

Which of the following statements is true about advertising by a monopolistically competitive firm?

To maximize their profits and defend those profits from competitors, monopolistically competitive firms must

A trademark is

Brand management refers to

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.

A franchise is

Monopolistically competitive firms can differentiate their products

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.

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

Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.

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?

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?

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?

Which of the following is a disadvantage of trademarking a firm's product?

A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.

What is meant by "excess capacity"? How does it relate to consumer utility?