Question 1

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.

Accepted Answer

The answer of Productive efficiency does not hold for a...

Question 2

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.

Accepted Answer

In monopolistically competitive markets, firms have some degree of market power, which allows them to charge prices greater than marginal costs. However, they also differentiate their products to cater to consumer preferences and tastes, offering a wider range of options that may better align with individual consumer needs. Therefore, consumers in these markets must make a tradeoff between the higher prices and greater product variety.

Question 3

Figure 13-11 
-Refer to Figure 13-11.Which of the following statements is true?
A) Da represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the demand curve in the short run.
B) Da represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the long-run demand curve in an increasing-cost industry.
C) Da represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor.
D) Da represents the long-run supply curve in a perfectly competitive, constant-cost industry while Db depicts the long-run demand curve facing a monopolistic competitor in a decreasing-cost industry.

Accepted Answer

The answer of Figure 13-11 
-Refer to Figure 13-11.Which of...

Question 4

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...

Question 5

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 to denote a particular type of product that it becomes a generic term, it may lose its legal protection as a brand name. This is known as trademark dilution, and it can be detrimental to a firm's ability to protect its intellectual property rights.

Question 6

In the long-run equilibrium,a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.

Accepted Answer

In the long-run equilibrium of a monopolistically competitive firm, it produces at a point where price is greater than marginal cost, which is not allocatively efficient. Allocative efficiency occurs when production is at the point where price equals marginal cost.

Question 7

Figure 13-11 -Refer to Figure 13-11.The diagram demonstrates that A) in the short run, the monopolistic competitor produces an output Q_b but in the long run after it adjusts its capacity, it will produce the allocatively efficient output, Q_a. B) it is not possible for a monopolistic competitor to produce the productively efficient output level, Q_a, because of product differentiation. C) it is possible for a monopolistic competitor to produce the productively efficient output level, Q_a, if it is willing to lower its price from P_b to P_a. D) in the long run, the monopolistic competitor produces the minimum-cost output level, Q_a, but in the short run its output of Q_b is not cost minimizing.

Accepted Answer

The answer of Figure 13-11 
-Refer to Figure 13-11.The diagram...

Question 8

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 using Michael Jordan to differentiate Air Jordan basketball shoes from other types of basketball shoes and create the perception that they are superior. By doing so, Nike can charge a higher price for Air Jordan shoes and increase its profits. The other choices are not relevant to Nike's use of Michael Jordan to market Air Jordan shoes.

Question 9

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 because it can create a perceived difference between the firm's product and its competitors' products, making consumers willing to pay a higher price. However, advertising has no effect on the demand for a perfect competitor's product since they are selling a homogeneous product.

Question 10

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

The credit card company is trying to convince customers that its card has greater value than those offered by rival firms by providing additional services and benefits. By doing so, they hope to attract more customers and retain existing ones, ultimately increasing their market share and profitability.

Question 11

One way by which firms differentiate their products is to find a market niche.

Accepted Answer

Finding a market niche is one of the ways by which firms differentiate their products. In this approach, a firm identifies a specific group of consumers with unique needs and preferences and develops a product targeted to satisfy those needs. This enables the firm to stand out from competitors and create a strong brand identity.

Question 12

Figure 13-10 
-Refer to Figure 13-10.In the long run,why will the firm produce Qf units and not Qg units,which has a lower its average cost of production?
A) Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.
B) At Qg, average cost exceeds marginal cost so the firm will actually make a loss.
C) At Qg, marginal revenue is less than average revenue which will result in a loss for the firm.
D) The firm's goal is to charge a high price and make a small profit rather than a low price and no profit.

Accepted Answer

Even though the average cost of production is lower at Qg, the firm will have to charge a price below average cost to sell their output. This will result in a loss for the firm. Therefore, it is more beneficial for the firm to produce at Qf, where they can charge a price that covers their average cost of production and make a profit.

Question 13

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 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 could provide consumers with useful information about new products and enable them to comparison shop. This allows consumers to make informed decisions about the products they purchase and potentially find better deals or higher quality options. Choices A, B, and D are not benefits to consumers, but rather benefits to the monopolistic competitor.

Question 15

Figure 13-10 
-Refer to Figure 13-10.Suppose the firm is currently producing Qf units.What happens if it increases its output to Qg units?
A) Its average cost of production will fall and its profit will rise.
B) It will be taking advantage of economies of scale and will be able to lower the price of its product.
C) It will move from a zero profit situation to a profit situation
D) It will move from a zero profit situation to a loss situation

Accepted Answer

If the firm increases its output from Qf to Qg, it will move from a zero profit situation to a loss situation, as the additional units will likely be produced at a higher cost than the revenue they generate.

Question 16

Figure 13-10 
-Refer to Figure 13-10.What is the amount of excess capacity?
A) Qh - Qf units
B) Qj - Qf units
C) Qj - Qh units
D) Qh - Qg units

Accepted Answer

The answer of Figure 13-10 
-Refer to Figure 13-10.What is...

Question 17

Figure 13-10 
-Refer to Figure 13-10.What is the allocatively efficient output for the firm represented in the diagram?
A) Qf units
B) Qg units
C) Qh units
D) Qj units

Accepted Answer

Allocative efficiency occurs when the marginal cost of production equals the marginal benefit to consumers. In the diagram, this occurs at output Qh.

Question 18

Figure 13-12 
-Refer to Figure 13-12 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 13-12 
-Refer to Figure 13-12 to...

Question 19

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 refers to the ongoing efforts to maintain the differentiation and positioning of a product or service over time. This includes developing a brand strategy, creating and maintaining brand identity, monitoring and protecting the brand reputation, and adjusting the brand positioning as needed in response to changing market conditions or customer feedback. It is not about simply picking a brand name, reducing costs, or selling the rights to use a brand name.

Question 20

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 symbol, design, phrase, or word that identifies and distinguishes a company's products from those of other companies. It is a form of intellectual property that grants a firm the legal right to use a specific sign or logo to differentiate its products from others in the market.

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

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.

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.

Figure 13-11 -Refer to Figure 13-11.Which of the following statements is true?

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

In the long-run equilibrium,a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.

Figure 13-11 -Refer to Figure 13-11.The diagram demonstrates that

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

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

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

One way by which firms differentiate their products is to find a market niche.

Figure 13-10 -Refer to Figure 13-10.In the long run,why will the firm produce Qf units and not Qg units,which has a lower its average cost of production?

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?

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?

Figure 13-10 -Refer to Figure 13-10.Suppose the firm is currently producing Qf units.What happens if it increases its output to Qg units?

Figure 13-10 -Refer to Figure 13-10.What is the amount of excess capacity?

Figure 13-10 -Refer to Figure 13-10.What is the allocatively efficient output for the firm represented in the diagram?

Brand management refers to

A trademark is