Question 1

A sunglass manufacturer spends a lot of money to promote its brand name.This promotion ________ consumers because it ________.

Accepted Answer

The promotion helps consumers because it provides them with a signal and information about the sunglasses. This can make the product more desirable and lead to increased demand. The promotion is a fixed cost and does not directly impact the marginal cost or average total cost of producing the sunglasses.

Question 2

Advertising is a ________ cost that is incurred by ________.

Accepted Answer

Advertising is typically considered a fixed cost because it does not change with the level of output in the short run, and it is particularly relevant for monopolistically competitive firms, which differentiate their products through advertising and branding.

Question 3

In which of the following ways do advertising and other selling costs affect a firm's cost curves?
i.Advertising expenditures increase total fixed costs.
ii.Selling costs increase total fixed costs.
iii.Advertising and other selling costs per unit of output decrease as output increases.

Accepted Answer

Advertising expenditures and selling costs are considered part of a firm's total fixed costs because they do not vary with the level of output in the short run. As output increases, the fixed cost per unit of output decreases, which is why option iii is also correct.

Question 4

In the long run,a firm in monopolistic competition ________ excess capacity and a firm in perfect competition ________ excess capacity.

Accepted Answer

In monopolistic competition, firms have some degree of market power and can set their own prices by differentiating their products. As a result, they may have excess capacity because they do not produce at the minimum efficient scale. On the other hand, in perfect competition, firms have no market power and are price takers, so they produce at the minimum efficient scale and do not have excess capacity.

Question 5

Firms decide how much to spend on product development and marketing by

Accepted Answer

Firms need to consider the cost and benefits of product development and marketing to make informed decisions. They need to determine whether the cost of these activities is justified by the potential increase in sales and revenue. It is not advisable to spend the same amount as previous years or use the historical average as it may not reflect the current needs of the company. Eliminating excess capacity should not be the only factor in determining the amount to spend on product development and marketing. The marginal cost of these activities should also be considered, but it cannot be the only factor as it does not account for the potential increase in revenue.

Question 6

To maintain their economic profits,firms in monopolistic competition must continually engage in

Accepted Answer

Firms in monopolistic competition must differentiate their product and continually develop new marketing strategies in order to maintain their economic profits. Because they are not the only firm in the market, they must continue to make their product appealing to consumers in order to stay ahead of their competitors. This requires product development and marketing efforts.

Question 7

Monopolistic competition is efficient when compared to

Accepted Answer

The answer of Monopolistic competition is efficient when compared to
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Question 8

A firm in monopolistic competition

Accepted Answer

A firm in monopolistic competition may have some degree of control over the price of its product, but it also differentiates its product through branding or other marketing strategies. Therefore, it is likely that the firm is selling a brand name product. Option A is incorrect because it implies that the firm has no control over price, which is not entirely true. Option C is incorrect because marketing and advertising are key components of competing in a monopolistic market.

Question 9

In the example of the Nike running shoe,we see that

Accepted Answer

Selling costs, which include marketing, distribution, and profit margins, often account for a significant portion of a shoe's retail price, frequently exceeding the costs of raw materials and production.

Question 10

When weighing the efficiency of monopolistic competition,which of the following should be considered?
i.the information provided by advertising
ii.product variety
iii.the extra cost of excess capacity

Accepted Answer

When evaluating the efficiency of monopolistic competition, it's important to consider all three factors: the information provided by advertising (which can both inform and mislead consumers), product variety (which can increase consumer welfare by offering more choices), and the extra cost of excess capacity (which refers to inefficiencies and higher costs associated with not operating at minimum average total cost). These elements together influence the overall market efficiency and consumer satisfaction in monopolistic competition.

Question 11

Because economic profits are eliminated in the long run in monopolistic competition,to make an economic profit,firms continuously

Accepted Answer

In monopolistic competition, firms differentiate their products from competitors to gain a slight pricing power. However, in the long run, new firms enter the market, creating more competition and reducing the ability for any single firm to make economic profits. Therefore, to make an economic profit in the long run, firms must continuously develop and market new products to maintain their differentiation and pricing power.

Question 12

In the long run,advertising by all firms in a monopolistically competitive industry

Accepted Answer

Advertising in a monopolistically competitive industry might increase or decrease the firms' prices by influencing product differentiation and thereby altering the perceived value of a particular firm's product. However, it does not necessarily affect all firms' demand or costs, nor does it consistently lower or increase all firms' prices.

Question 13

In the long run,a firm in monopolistic competition ________ a markup of price over marginal cost,and a firm in perfect competition ________ a markup of price over marginal cost.

Accepted Answer

In monopolistic competition, firms have market power and can set prices higher than marginal cost to increase profits. Therefore, they have a markup of price over marginal cost. In perfect competition, firms have no market power and must accept the market price as given. They cannot set prices higher than marginal cost without losing customers to competitors. Therefore, they do not have a markup of price over marginal cost.

Question 14

Which of the following statements about product development in monopolistic competition is correct?
i.Firms in monopolistic competition undertake too much product development for efficiency.
ii.Firms in monopolistic competition undertake too little product development for efficiency.
iii.Product development might allow the firm to make a temporary economic profit.

Accepted Answer

In monopolistic competition, firms undertake too little product development for efficiency because they have some degree of market power and can differentiate their products from competitors without investing in further product development. However, product development can allow the firm to make a temporary economic profit by attracting more customers or charging a higher price for a newer or improved product. Therefore, both ii and iii statements are correct. Statement i is incorrect because firms in monopolistic competition do not have the incentive to undertake too much product development as it would increase their costs and might not lead to a significant increase in demand.

Question 15

For a firm in monopolistic competition to undertake product development,the marginal cost of the development must be ________ the marginal benefit of the development to consumers.

Accepted Answer

The answer of For a firm in monopolistic competition to...

Question 16

How do advertising and other selling costs affect a firm?

Accepted Answer

Advertising and other selling costs are considered fixed costs in the short run, meaning they do not affect the marginal cost of producing each unit of the product. However, they do increase the average total cost of producing each unit, as they are expenses incurred regardless of the quantity produced. This results in a rightward shift of the average total cost curve.

Question 17

A firm is spending the profit-maximizing amount on product development when

Accepted Answer

The profit-maximizing amount of product development occurs when the marginal cost of product development is equal to the marginal revenue from product development. This is because any further spending on product development would not lead to an increase in profits as the additional revenue gained would not cover the additional cost. Therefore, the firm should stop spending on product development at this point to maximize its profits.

Question 18

Firms attempt to create a consumer perception of product differentiation through
i.packaging.
ii.marketing.
iii.advertising.

Accepted Answer

Firms use packaging, marketing, and advertising to create a perception of product differentiation, making their products appear unique or superior to competitors' offerings.

Question 19

The shampoo industry is constantly coming out with new products.The reason is that when a firm introduces a new shampoo into the market,the demand for the shampoo becomes ________ temporarily and economic profit ________.

Accepted Answer

When a firm introduces a new shampoo, the demand becomes less elastic temporarily because consumers are curious and willing to try the new product despite the price. This can lead to an increase in economic profit as the firm can capitalize on the initial lack of substitutes and high interest.

Question 20

For a firm in monopolistic competition,innovation and product development are

Accepted Answer

In monopolistic competition, firms differentiate their products in order to create brand loyalty and gain market power. This means that innovation and product development are necessary in order to differentiate from competitors and gain a foothold in the market. While economic profit may not be long-term due to competition, innovation and product development can still lead to short-term economic profit.

Quiz 17: Monopolistic Competition

A sunglass manufacturer spends a lot of money to promote its brand name.This promotion consumers because it .

Advertising is a cost that is incurred by .

In which of the following ways do advertising and other selling costs affect a firm's cost curves? i.Advertising expenditures increase total fixed costs. ii.Selling costs increase total fixed costs. iii.Advertising and other selling costs per unit of output decrease as output increases.

In the long run,a firm in monopolistic competition excess capacity and a firm in perfect competition excess capacity.