Chapter 17

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Chapter 17 Test bank for practicing before final exam
Microeconomics - UEH (Trường Đại học Kinh tế Thành phố Hồ Chí Minh)
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lOMoARcPSD|32204997
Chapter 17/Monopolistic Competition  519
Chapt
er17
Monopol
ist
icCompe
tit
ion
MULTI
PLECHOI
CE
1. Monopol is
ticc ompe ti
ti
onischar
act
eri
zedbywhi
choft
hef
oll
owi
nga
ttr
ibut
es?
(i
) f reeent r
y
(i
i) pr oductdi ffe
renti
ati
on
(i
ii
) manys ellers
a.( i
)and( i
ii)onl y
b.( i
)and( i
i)onl y
c.( i
i)and(iii)only
d.( i
),(i
i)
,and( i
ii)
ANSWER: d. (i)
,( i
i),and(i
ii
)
TYPE:
M DI FFICULTY:1SECTI ON:17.
1
2. Thephe nome nonofpr oductdiffe

renti
ati
onc
ont
ras
tss
har
plywi
tht
hephe
nome
nonof
a. homoge neouspr oducts
.
b.i ndustr
ialproduc t
s.
c. monopol i
sti
cc ompe t
it
ion.
d.pr oductintegr
a t
ion.
ANSWER: a. homoge neouspr oducts.
TYPE:
M DI FFICULTY:1SECTI ON:17. 1
3. Inamonopol ist
icall
ycompe ti
tiveindust
ry,pri
ceis
a.e qualtomar ginalc
os tsi
nc eeachfir
mi sapr i
cetaker.
b.be low marginalcostsinceeachfirmisapr ic
etaker.
c. abovemar gi
nalc os
ts inc
ee achfirmisapr i
cesette
r.
d.al waysafracti
onofmar ginalcostsi
ncee ac
hfirmi sapri
ceset
ter
.
ANSWER: c. abovemar ginalcosts i
nceeachfirmisapr ic
eset
ter
.
TYPE:
4. Inwhi chofthefoll
owingmar ketst
ruc
tur
esi
sthenumbe
rofs
ell
ersl
esst
han“many?
”
(i
) monopol i
sti
ccompe ti
ti
on
(i
i) monopol y
(i
ii
) oligopoly
a.( i
)and( i
i)only
b.( i
i)and(iii
)only
c.( i
i)only
d.Al loftheabovearec orre
ct.
ANSWER: b. (i
i)and(ii
i)only
TYPE:
M DI FFICULTY:1SECTI ON:17.1
5. Whichoft hefoll
owingmar ketstr
uct
ure
sfe
atur
esf
reee
ntr
yande
xit
?
(i
) pe rf
ectcompetiti
on
(i
i) monopol ist
iccompe ti
ti
on
(i
ii
) monopol y
a.( i
)only
b.( i
)and( i
i)onl
y
c.( i
i)and(iii
)only
d.Al loftheabovear ecorre
ct.
ANSWER: b. (i
)and(ii)only
TYPE:

lOMoARcPSD|32204997
520  Chapter 17/Monopolistic Competition
6. Monopol i
sti
cc ompe ti
ti
ondi ffe
rsfrom per
fe c
tcompe ti
ti
onbe caus
einmonopol
is
tic
all
ycompe
tit
ivemar
ket
s
a.therearebar rie
rstoe ntr
y .
b.allfir
msc aneventuallyearneconomicpr ofits
.
c.eachoft hes el
lersoffe
rsas ome whatdiffe
rentpr oduct.
d.strate
gicinteract
ionsbe t
we enfirmsisvitall
yi mpor t
ant.
ANSWER:c. eachoft hesell
ersoffe
rsas omewha tdiffe
rentproduct
.
TYPE:
M DIFFICULTY:2SECTI ON:17. 1
7. Onewa yinwhi chmonopol ist

iccompe t
iti
ondiffer
sf r
om oligopol
yis
a.t herearenobar rierst
oentryinoligopoli
es.
b.i noligopolymar ketst
hereareonlyaf ewselle
rs.
c. alloli
gopolyfirmse vent
uall
ye arnzeroeconomi cprofit
s.
d.s tra
tegicint
eractionsbet
we enfir
msar erare
lye vi
de ntinoli
gopol
ies
.
ANSWER: b. i
noligopolymar ket
sthereareonlyaf ews ell
ers.
TYPE:
8. Asi
mi l
arit
ybe tweenmonopol yandmonopol ist
iccompetit
ioni
stha
t,i
nbot
hmar
kets
truc
tur
es,
a.str
ategi
cinteract
ionsamongs eller
sareimportant.
b.therearefe
we rthan“many”s e
llers
.
c.sell
ersarepricemake rsr
atherthanpric
etakers.
d.productdiffer
entia
tionisimportant.
ANSWER:c. sel
lersarepr i
cemakersrathert
hanpr ic
etake
rs.
TYPE:
M DIFFICULTY:2SECTI ON:17.1
9. A profit
-maximizingfirminamonopol i
sticall
yc ompe ti
ti
vemar ketdi
ffe
rsf
rom afir
minape
rfe
ctl
ycompe
tit
ive
marketbe causethefir
mi nthemonopol isti
c al
lyc ompe t
it
ivemar ke
t
a.isc haracter
izedbymar ketsharemaxi mi za
tion.
b.hasnobar rierst
oe ntry
.
c.fac esadownwar d-sl
opingde mandc urvefori tsproduct.
d.fac esahor i
zontaldemandc urvea tt
hemar ketc l
eari
ngpr i
c e
.
ANSWER: c. f
acesadownwar d-
slopingde mandc urveforitsproduct
.
TYPE:
10. Thepr ofit

-maximi zi
ngr uleforafirmi namonopol ist
ical
lyc
ompe
tit
ivemar
keti
stos
ele
ctt
hequant
it
yatwhi
ch
a. mar ginalr
e venueise qualtomar ginalcos
t.
b.a veragetotalcostisequalt omarginalrevenue.
c.a veragetotalcostisatitsmi ni
mum val ue.
d.a veragereve nueexceedsa vera
get otalc
ost.
ANSWER: a. mar gi
nalrevenuei sequaltomar ginalc
ost.
TYPE:
11. A profit
-maximi zi
ngfirmi namonopol i
stical
lycompeti
ti
vemar
keti
schar
act
eri
zedbywhi
choft
hef
oll
owi
ng?
a. Ave ragerevenueex c
eedsmarginalrevenue.
b.Mar ginalrevenuee x
ceedsaver
ager e
ve nue.
c. Ave ragerevenueisequaltomar gi
nalr e
venue.
d.Re ve nueisalwaysmaxi mizedalongwi thprofit
.
ANSWER: a. Averagerevenueexcee
dsmar gi
nalrevenue
.
TYPE:
1

lOMoARcPSD|32204997
Us
ethefigur
esbe
low t
oans
werque
sti
ons12t
hrough14.
12. Whichoft hegraphswoul

dmos tl
ike
lyr
epr
ese
ntapr
ofit
-maxi
mizi
ngfir
minamonopol
is
tic
all
ycompe
tit
ivemar
ket
?
a. panela
b.pane lb
c. panelc
d.pane ld
ANSWER: a. panela
TYPE:
M DI FFI
CULTY:2SECTI ON:17.1
13. Ifafir
mi namonopol ist
icallycompe ti
ti
vemarke
twasproduc
ingt
hel
eve
lofout
putde
pic
tedasQdi
npane
ld,i
t
would
a. notbemaxi mizi
ngi t
spr ofit
.
b.bemi nimi zi
ngitsloss
e s.
c. belosi
ngmar ketsharet ootherfir
msi nt
hemarke
t.
d.beope rati
nga texc
e s
sc apacit
y.
ANSWER: a. notbemaxi mizingitsprofit
.
TYPE:
M DI FFI
CULTY:2SECTI ON:17. 1
14. Thefirm depict

edinpane lbfacesahori
zontaldemandc urve.Ifpanelbdepi
ctsaprofit
-maximizingfir
m,
a.itcouldbeope ra
tingineit
heraperfec
tlycompeti
tivemar ke
tori namonopolis
tic
allycompe t
itivemarket.
b.itwoul dnotha vee x
cesscapaci
tyi
nitsproducti
onasl ongasi ti
searni
ngzeroeconomi cprofit
.
c.itisablet ochoosethepriceatwhi
chitsell
sit
sproduc t.
d.Al loftheabovear ecorre
ct.
ANSWER:b. itwouldnotha veexces
scapaci
tyinit
spr oducti
onasl ongasiti
searni
ngz eroeconomi cprofit
.
TYPE:
15. Productdiffer
ent
iat
ioncaus
e st
hesel
lerofagoodt
ofac
ewha
ttypeofde
mandc
urve
?
a. downwar dsl
opi
ng
b.upwar ds l
opi
ng
c. horizontal
d.ve rti
cal
ANSWER: a. downwar ds
loping
TYPE:

lOMoARcPSD|32204997
Us
ethefigur
ebe
low t
oans
werque
sti
ons16t
hrough18
.
16. Whichoft hegraphss

hownwoul
dbec
ons
ist
entwi
thafir
minamonopol
is
tic
all
ycompe
tit
ivemar
kett
hati
sear
ning
apositi
veprofit
?
a. panela
b.pane lb
c. panelc
d.pane ld
ANSWER: c. panelc
TYPE:
M DI FFI
CULTY:2SECTION:17.
1
17. Whichoft hegraphsshownwoul

dbec
ons
ist
entwi
thafir
minamonopol
is
tic
all
ycompe
tit
ivemar
kett
hati
sdoi
ng
it
sbestbutstil
llos
ingmoney?
a. panela
b.pane lb
c. panelc
d.pane ld
ANSWER: b. panelb
TYPE:
M DI FFI
CULTY:2SECTI ON:17.
1
18. Whichoft hegraphsdepict

samonopoli
sti
cal
lyc
ompe
tit
ivefir
minl
ong-
rune
qui
li
bri
um?
a. panela
b.pane lb
c. panelc
d.Noneoft heabovearecorr
ect
.
ANSWER: d. Noneoftheabovearecor
rec
t.
TYPE:
M DI FFI
CULTY:2SECTI ON:17.
1
19. Int
hes hortrun,afir
mi namonopoli
sti
cal
lyc
ompe
tit
ivemar
ketope
rat
esmuc
hli
kea(
n)
a. perf
ect
lyc ompeti
tivefir
m.
b.oligopolyfir
m.
c. monopoly.
d.Al loftheabovearec orr
ect
.
ANSWER: c
. monopoly.
TYPE:
M DIFFICULTY:2SECTI ON:17.
1

lOMoARcPSD|32204997
20. A monopolist
ical
lycompe t
it
ivefirmc hooses
a.t hequanti
tyofoutputtopr oduce,butthemar ketdet
erminespric
e .
b.t hepric
e,butcompe t
it
ionint hemar ketdeter
minesthequanti
ty.
c. price
,butoutputisdeter
mine dbyac art
elproduct
ionquota.
d.t hequanti
tyofoutputtopr oduceandt hepr i
ceatwhichitwil
lsellit
soutput.
ANSWER: d. t
hequant i
tyofoutputtopr oduc eandthepric
eatwhi c
hi twills
elli
tsout
put
.
TYPE:
21. Iffir
msi namonopol i
sti
call
ycompe t
it
ivemar ke
tar
eear
ningpos
iti
vepr
ofit
s,
a. firmswi lll
ikelybesubje
cttor e
gulation.
b.bar ri
erstoentrywillbestr
engthene d.
c.s omefirmsmus te
xitthemar ket
.
d.ne w fir
mswi llent
erthemar ket.
ANSWER: d. new fir
mswi lle
nterthemar ket
.
TYPE:
M DI FFI
22. Iffir
msi namonopol is
ticall
ycompe t
iti
vemar ketaree
arninge
conomicpr
ofit
s,whi
chofthefoll
owi
ngs
cenar
ios
woul dbe stre
flectthec hangefaci
ngi ncumbentfirmsasthemarke
tadj
ust
stoitsne
we qui
li
brium?
a. ani ncreaseinde mand
b.ade c
reaseinde mand
c. adownwar ds hif
tint heirmar
ginalc os
tcurve
d.anupwar ds hiftinthe i
rmarginalcostcur
ve
ANSWER: b. ade creaseinde mand
TYPE:
M DI FFI
23. Iffir
msi namonopol i
sti
call
ycompe t
iti
vemar ketarei
ncur
ringeconomicl
osse
s,whi
chofthefol
lowi
ngs ce
narios
woul dbe stre
flectthec hangefaci
ngi ncumbentfirms(whoareabletos
tayint
hemarke
t)asthemarketadjus
tstoit
s
newe quil
ibri
um?
a. adownwar ds hiftintheirmar
ginalc os
tcurve
b.anupwar ds hiftinthe i
rmarginalcostcur
ve
c. ade c
reaseinde mand
d.ani ncreaseinde mand
ANSWER: d. aninc reaseinde mand
TYPE:
M DI FFI

lOMoARcPSD|32204997
Li
nesi
nthefigur
esbel
ow r
efle
ctt
hepote
nti
ale
ffec
tofe ntr
yandexi
tinamonopol
is
tic
all
ycompe t
it
ivemarke
tont
he
de
mandand/ormar gi
nalc
ostcur
vesofi
ncumbentfir
ms .Uset
hes
efigur
est
oanswerquest
ions24and25.
24. Paneldi nthes etoffiguresshowndepic

tsthee ffe
ctoninc
umbe ntfir
msof
a.l ong-rune conomi clos
ses.
b.ade creaseinthedi ver
s i
tyofpr
oductsoffe
redi nthemarke
t.
c. newe ntrantsi
nthemar ket
.
d.e xist
ingfirmse xi
t i
ngthemar ke
t.
ANSWER: c. newe ntr
ant sinthemarke
t.
TYPE:
25. Whichoft hedia

gramsde
pic
tstheeffe
ctoni
ncumbe
ntfir
msofs
omee
xis
tingfir
msl
eavi
ngt
hemar
ket
?
a. panela
b.pane lb
c. panelc
d.pane ld
ANSWER: c. panelc
TYPE:
M DI FFI
CULTY:2SECTION:17.1
26. Inmonopolisti
call
yc ompe t
iti
vemarke
t s
, e
conomicpr
ofit
s
a.s i
gnalsomei ncumbe ntfir
mstoexitthemarket
.
b.s i
gnalnew fir
mst oe nte
rthemarket.
c. aremaintai
ne dthroughgovernment-impose
dbarri
erstoe
ntr
y.
d.ar eneverpossibl
e.
ANSWER: b. si
gnalnew firmstoente
rthemar ket
.
TYPE:
M DI FFI
CULTY:1SECTI ON:17.
1
27. Inmonopolisti
call
yc ompe t
iti
vemarkets
, e
conomi cl
oss
es
a.s i
gnalsomei ncumbe ntfir
mstoexitthemar ket
.
b.s i
gnalnew fir
mst oe nte
rthemarket.
c. ar
emai ntai
ne dt hroughgovernment-imposedbarri
erst
oexi
t.
d.arene verpossible.
ANSWER: a. si
gnals omei ncumbentfir
mst oexitthemarket
.
TYPE:
M DIFFICULTY:1SECTI ON:17.
1

lOMoARcPSD|32204997
28. Asne w fir

mse nteramonopol i
sti
cal
lycompe ti
ti
vemar ket
,profit
sofe
xis
tingfir
ms
a.r i
seandpr oductdi
versit
yinthemar ke
ti ncr
e as
es.
b.r i
seandpr oductdi
versit
yinthemar ke
tde creases.
c. decl
ineandpr oductdive
rsi
tyinthemar ketincreas
e s
.
d.de cl
ineandpr oductdive
rsi
tyinthemar ketde c
reases.
ANSWER: c. de
c l
ineandproductdiver
sit
yint hemar ketincre
ase s
.
TYPE:
M DIFFI CULTY:2SECTI ON:17.1
29. Assomei ncumbentfir

mse xi
tamonopol i
sti
call
yc ompe t
iti
vemar
ket
,pr
ofit
sofe
xis
tingfir
ms
a. decl
ineandproduc tdivers
ityinthemarketde c
reases
.
b.de cl
ineandproduc tdivers
ityinthemarketincreas
es.
c.r i
seandproductdiversityinthemarketdecreases.
d.r i
seandproductdiversityinthemarketincr
e as
es.
ANSWER: c. ris
eandpr oduc tdiver
sit
yinthemar ketdecreases
.
TYPE:
30. Thefreee ntryande xitoffir

msi namonopol is
ticall
ycompe ti
ti
vemar ke tguar
ant
eest
hat
a. bothe conomi cpr ofit
sande c
onomi closs
esc anpe r
sistintothelongr un.
b.bot he conomi cpr ofit
sande c
onomi closs
esdi sappearint helongr un.
c.e conomi cpr ofit
sc anpe r
sistintothelongrun,butnote conomi cl
os ses.
d.e conomi closse scanpe rsi
stintothelongrun,butnote conomi cprofits.
ANSWER: b. bothe conomi cprofitsande c
onomi clossesdisappe arinthel ongr
un.
TYPE:
31. Inmonopolis
ticall
yc ompe t
iti
vemar ke t
s,thepr oper tyoffreeentr
yandexi
tsugges
tsthat
a.themar ketstructurewilleventuall
ybec haracterize
dbype rf
ectc
ompet
iti
oninthelongr
un.
b.allfir
mse arnz eroeconomi cprofit
sint helongr un.
c.somefirmswi llbeabletoe arneconomi cpr ofit
si nthelongrun.
d.somefirmswi llbeforce
dt oincure conomi closs esi
nt helongrun.
ANSWER:b. allfir
mse ar
nz eroe c
onomi cpr ofit
sint helongr un.
TYPE:
32. Whe napr ofit- maximi

zingfir mi namonopol ist
icall
yc ompeti
ti
vemar ke
tispr
oduc
ingt
hel
ong-
rune
qui
li
bri
um
quantit
y ,
a.itsa verager evenuewi l
le qualitsmargi nalcost.
b.itsmar ginalr e
venuewi llexc e
editsmar gi
nalc ost
.
c.itwi llbee arni
ngpos i
tivee conomicpr ofit
s.
d.itsde mandc urvewillbet angenttoitsa ver
age -t
otal-
cos
tcurve.
ANSWER: d. itsde mandcur vewi l
lbetange nttoitsaverage-
tot
al-
costc
urve.
TYPE:
33. Whe nafirm' sde

mand( aver
ager evenue )curveistange
ntt oi
tsa
verage
-tot
al-
cos
tcur
ve,t
he
a. fir
m’seconomi cprofiti
szero.
b.firm mus tbeearninge c
onomi cpr ofit
s.
c. fir
m mus tbeincurri
nge conomi closses.
d.firm mus tbeope r
ati
ngi namonopol is
tic
all
yc ompetit
ivemarke
t.
ANSWER: a. firm’
seconomi cprofitiszero.
TYPE:
M DI FFI

lOMoARcPSD|32204997
Us
ethefigur
esbe
low t
oans
werque
sti
ons34t
hrough37
34. Pane
l( a)showsapr ofit-
maxi mizingmonopol
ist
ical
lycompe
tit
ivefir
mtha
tis
a.ear ningaze ropr ofit
.
b.inl ong- r
une quil
ibr i
um.
c.char gingapr icetha tisequaltoaver
aget
otalcos
t.
d.Al loft heabovear ec orr
e c
t.
ANSWER:d. Alloftheabovear ecorre
ct.
TYPE:
35. Whichoft hepanel

sshownc oul
dcharac
ter
izes
hor
t-r
une
qui
li
bri
um f
orafir
minamonopol
is
tic
all
ycompe
tit
ive
market?
a. panela
b.pane lb
c. panelc
d.Al loftheabovear
ecorrect
.
ANSWER: d. Alloft
heabovearecor
rec
t.
TYPE:
M DI FFI
36. Pane
lbint hese toffiguress howni sconsi
ste
ntwithafirminamonopol
is
tic
all
ycompe
tit
ivemar
kett
hati
s
a.inshor t
-rune quilibr
ium,butnotl ong-runequi
libr
ium.
b.inlong-rune qui l
ibri
um,butnots hort-
runequi
libr
ium.
c.inbot hshort-runandl ong-runequili
bri
um.
d.earningapos i
tiveprofit.
ANSWER:a. i
ns hort-rune quili
brium,butnotlong-
rune qui
li
bri
um.
TYPE:
37. Whichoft hepanelsdepi

ctsafir
mi namonopol
is
tic
all
ycompe
tit
ivemar
kete
arni
nge
conomi
cpr
ofit
s?
a. panelc
b.pane ld
c. bothpanelscandd
d.Noneoft heabovearecor
rect.
ANSWER: a. panelc
TYPE:
M DI FFI

lOMoARcPSD|32204997
38. Whe napr ofit

-maximi zingfir
mi namonopol ist
ical
lyc
ompe
tit
ivemar
keti
sinl
ong-
rune
qui
li
bri
um,
a.thede mandc urvewi l
lbepe r
fec
tlyelas
tic
.
b.pr iceexceedsmar ginalcost.
c. mar gi
nalcostisfalli
ng.
d.mar gi
nalrevenuee x
c e
edsmar gi
nalcost.
ANSWER: b. priceexceedsmar ginalcost
.
TYPE:
39. A pr
ofit-maximi zingfir
mi namonopol i
sti
cal
lyc
ompe
tit
ivemar
ketal
waysope
rat
esa
tthepoi
ntof
a. mi nimum a veragetotalcost
.
b.uni t
aryelastic
ityofde mand.
c.e ffic
ientscale.
d.Noneoft heabovear ec orr
ect.
ANSWER: d. Noneoft heabovear ec or
rec
t.
TYPE:
40. Sinc
eafir minamonopol ist
ical
lyc ompeti
tivema r
ketfacesa
a. downwar d-s
lopingde mandc urve,i
twi llalwaysope r
atewi the x c
esscapaci
ty.
b.downwar d-s
lopingde mandc urve,i
twi llalwaysope r
ateate ffic
ientscal
e.
c. perfe
c t
lyel
asti
cde mandc urve,itwil
lalwa ysoperatewithe x cesscapacit
y.
d.pe rfe
c t
lyi
nelast
icdemandc ur ve,i
twillalwa ysoperat
ea tefficientscal
e.
ANSWER: a. downwar d-s
lopingde mandc urve ,i
twillalwaysope rat
ewi thexces
scapac
ity
.
TYPE:
41. Whe nafirm oper

ateswithex c
essc apaci
ty,
a. addit
ionalpr
oduc t
ionwoul dlowe rthea ver
agetotalcost
.
b.addi t
ionalpr
oduc t
ionwoul dinc reas
ea ver
agetota
lc ost
.
c.i tmustbeape rf
ect
lycompe t
it
ivefirm.
d.i tmustbeamonopol ist
icall
yc ompe t
iti
vefirm.
ANSWER: a. addi
ti
onalproduc ti
onwoul dlowertheave r
agetotalc
ost
.
TYPE:
M DI FFI
42. Whenafirm operat

esa te fficie
ntscale,
a.itsavera
gerevenuemus texce
edt heminimum ofaveragetotalcost.
b.itsavera
gerevenuemus tbeequaltothemi nimum ofaver
a getotalcos
t.
c.thea ve
rage-
tot
al-c
os tc ur vemus tbefal
ling.
d.thea ve
rage-
tot
al-c
os tc ur vemus tberis
ing.
ANSWER:b. itsa
veragere ve nuemus tbeequaltotheminimum ofa ve r
agetot
alc
ost
.
TYPE:
43. Int
hel ongrun,afirminape r
fec
tlyc ompe t
iti
vemar ketoperat
esat
a.effici
entscal
eandamonopol is
ticallycompe t
it
ivefirm oper
atesatefficie
nts c
ale.
b.effici
entscal
eandamonopol is
ticallycompe t
it
ivefirm oper
ateswit
he x ces
sc apaci
ty.
c.exc es
scapacityandamonopol i
sticall
ycompe tit
ivefir
m operat
eswi the xcesscapacit
y .
d.exc es
scapacityandamonopol i
sticall
ycompe tit
ivefir
m operat
esate ffic
ients c
ale
.
ANSWER:b. e
ffic
ientsc
aleandamonopol is
tic
all
yc ompe ti
ti
vefir
m opera teswi t
he xces
sc apac
ity
.
TYPE:
M DIFFI CULTY:2SECTI ON:17.
1
44. Int
hel ongr un,aprofit
-maximizingfir
mi namonopol i
sti
call
ycompe
tit
ivemar
ketope
rat
esa
t
a.e ffici
ents c
ale
.
b.al evelofoutputatwhi c
ha veragetotalcos
tisris
ing.
c. al evelofoutputatwhi c
ha veragetotalcos
tisfal
ling.
d.thel evelofoutputatwhicht otalr
evenueismaxi mi zed.
ANSWER: c. alevelofoutputatwhi chave r
agetot
alcos tisfal
li
ng.
TYPE:
M DI FFI CULTY:2SECTI ON:17. 1

lOMoARcPSD|32204997
45. Productdi ffer

e nti
ati
oninmonopol is
tic
all
yc ompet
it
ivemar
ket
sens
ure
stha
t,f
orpr
ofit
-maxi
mizi
ngfir
ms,
a. mar ginalre venuewi l
lequalaveragetotalc
ost
.
b.pr icewi llex ce
edmar ginalcos
t.
c. mar ginalc ostwille
x c
eeda ver
ager eve
nue .
d.a veragevar i
ablecostwillbedec l
ini
ng.
ANSWER: b. pric ewil
lexceedmar ginalcost
.
TYPE:
46. A fir
mi namonopol is
ticall
yc ompe titi
vemar ketope r
ates
a. whe r
emar ginalr
eve nueiszer o.
b.whe r
emar ginalr
eve nueisne gat i
ve.
c. ontherisi
ngpor ti
onofi tsaver age-t
otal
-cos
tc urve.
d.ont hede cl
iningportionofitsa verage-t
otal
-costcurve.
ANSWER: d. onthede c
liningpor t
ionofi t
saverage-t
otal-
costc
urve
.
TYPE:
47. Hotel
sinNe w YorkCityfrequent
lyexper
ienc
eanaver
agevacancyra
teofa bout20perce
nt(
i.
e.
,onana
ver
ageni
ght
,
80percentofthe i
rroomsar eful
l)
.Thiski
ndofexc
esscapac
ityisi
ndica
tiveofwha tki
ndofmarke
t?
a. monopol y
b.pe rf
ec tc
ompe t
it
ion
c. monopol i
sticcompe ti
ti
on
d.oligopoly
ANSWER: c
. monopol is
ticcompeti
ti
on
TYPE:
48. Forprofit
-maxi mizingfirmsinamonopoli
sti
cal
lyc
ompe
tit
ivemar
ket
,anot
herc
ust
ome
rme
ans
a. noc hangei nprofit.
b.mor eprofit.
c. potenti
ale conomicl oss
es.
d.mar gi
nalc ostcouldpotenti
all
yex
cee
dpr ic
e.
ANSWER: b. mor eprofit
.
TYPE:
49. A profit
-maximizi
ngfir mi namonopol i
sti
call
ycompeti
ti
vemarke
tiseage
rforanot
herc
ust
ome
rbe
caus
e
a.itwant stomai ntainthee qual i
tybe t
we e
npr i
ceandmargi
nalcos
t.
b.pr iceexce
edsmar ginalcost.
c. amar kupove rmar ginalcos tisdiffic
ulttomaint
ain.
d.ite arnszeroeconomi cpr ofitsinthel ongrun.
ANSWER: b. priceexceedsmar ginalcos t.
TYPE:
50. A monopol ist

ical
lycompe ti
tivemar ke
tcouldbeconsider
edineffici
entbe
caus
e
a. mar ginalre
ve nueexceedsaveragereve
nue.
b.pr ic
ee x
ceedsmar gi
nalc ost
.
c.e ffici
entsc
alei sr
eali
zedi nthelongrun,butnotintheshortr un.
d.mar kuppr i
c i
ngdoe snotoc c
urinanyot he
rmar ketst
ruct
ure.
ANSWER: b. pr
icee xc
eedsmar ginalcost
.
TYPE:
M DI FFI CULTY:2SECTI ON:17. 1
51. Whenapr ofit

-maximizingfirminamonopol i
sti
call
ycompet
iti
vemarketchargesapric
ehi
ghe
rthanmar
ginalc
ost
,
a.iti
svi olati
ngt heantit
rustla
ws .
b.itmus tbel osingmone y.
c.thereisade adweightloss
,butitisexact
lyoffs
etbythebe
nefitofe
xces
sc apaci
ty.
d.Noneoft heabovear ec or
rect
.
ANSWER:d. Noneoft heabovear ecorre
c t
.
TYPE:

lOMoARcPSD|32204997
52. Thede adwe ightlossthatisas soci

ate
dwi thamonopol
ist
ical
lycompet
it
ivemar
keti
sar
esul
tof
a. pricefall
ings hortofmar ginalcostinorde
rtoi
ncre
asemar kets
har
e.
b.pr iceex c
eedingmar ginalcost.
c. operatinginar egula t
edi ndustry
.
d.e xcessi
veadve r
tisi
ngc osts.
ANSWER: b. pric
ee xceedingmar gi
nalcost
.
TYPE:
53. Regulati
onofafirmi namonopol istical
lyc ompe t
it
ivemar
ket
a. usuall
yi mpli
esave rysmalladmi nistr
a tiveburden.
b.wi lll
owe rthefir
m’ scos
ts.
c.isc ommonl yus e
dt oenhancemar kete ffici
ency.
d.isunl ike
lytoimpr ovemarketeffic
iency.
ANSWER: d. isunli
kelytoimprovemar ketefficie
nc y
.
TYPE:
54. Theadmi ni
strat
ivebur denofregula
t i
ngpriceinamonopol i
sti
call
ycompe ti
ti
vemar keti
s
a.smal lduetoe conomi esofs
cale
.
b.largebecausepr iceisusual
lybelow marginalcost
.
c.largebecauseoft helargenumbe roffir
mst hatproducedi
ffer
enti
atedproducts
.
d.smal lbecausefir
mspr oduc
ewi t
he xcesscapaci
ty.
ANSWER:c. l
argebe causeofthelar
genumbe roffir
mst ha
tproducediffe
renti
ate
dpr oduct
s.
TYPE:
55. Ifr
egul a
torsrequiredfirmsi nmonopol is
ticallyc ompe t
iti
vemarke
tst
ose
tpr
icee
qualt
omar
ginalc
ost
,
a. fir
mswoul dmos tli
kelyexperi
encee conomi closses.
b.firmswoul dal s
oope rateatmaximum e ffic
ients cal
e.
c. new fir
mswoul dbel ikelytoenterthemar ket.
d.t hemos teffic
ientfir
msar enotlikel
yt obeaffe cte
d.
ANSWER: a. fir
mswoul dmos tli
kel
ye xperienc eec onomiclos
ses
.
TYPE:
56. Ifr
egul a
torsrequiredfirmsinmonopol is
tic
all
yc ompetitivemarke
tstos
etpr
icee
qualt
omar
ginalc
ost
,
a. fir
mswoul dr espondbyl owe r
ingtheircos
ts.
b.firmswoul dr equireasubsidytos t
ayinbus i
ness
c. new fir
mst ha tenterthemar ketwouldope r
ateatefficie
ntsc
ale.
d.t hemos teffic
ientfirmswoul dnotbeaffect
ed.
ANSWER: b. fir
mswoul drequir
eas ubs
idytostayinbus iness
TYPE:
57. Ine
ffic
iencyi nmonopol ist
icall
yc ompe ti
tivemar ket
scanbei de
nti
fie
dwi
th
a.i nfe
r i
orpr oductspr oduc edbymos tfirms.
b.gove r
nme ntpr ogramst ha teffec
tive
lyr egula
teprice.
c.t heirsimilari
ti
estope rf
e c
tlyc ompetiti
vemar kets
.
d.notha vingthe" i
de al"numbe roffir
msi ntheindustry
.
ANSWER: d. nothavingt he" i
de al
"numbe roffirmsint heindus
try
.
TYPE:
58. Bef
oreane w firme nt er
samonopol i
sti
cal
lyc
ompe
tit
ivemar
ketwi
thane
w pr
oduc
t,i
tcons
ide
rs
a.thepr ofitoppor tunit
ies.
b.thebus iness-s
teal i
nge xte
rnali
ty.
c.thepr oduc t
-varietyexternali
ty.
d.Al loftheabovear ecor r
ect.
ANSWER: a
. thepr ofitopportunit
ies.
TYPE:

lOMoARcPSD|32204997
59. Theproduct-
vari
etye xternalityisassociat
edwi t
h
a.theproducersur plustha tac c
ruestoincumbe ntfir
msi namonopol i
sti
cal
lycompe t
it
iveindus
try
.
b.lossofconsume rs urplusf r
om e xposuretoaddit
ionaladvert
isi
ng.
c.theconsume rsurpl usthati sgenerat
edf r
om theintroduct
ionofane w pr
oduct.
d.theoppor t
unit
yc ostoffirmse xiti
ngamonopol i
stic
all
ycompe t
iti
veindustr
y.
ANSWER:c. theconsume rsur plusthatisgenera
tedfrom theintr
oducti
onofane w product.
TYPE:
60. Whe nc onsume rsareexpos edtoadditionalchoice

sthatresultfr
om theint
roduc
tionofanew produc
t,
a.t hei
rs at
isf
ac t
ionislikel
yt obelowe redasar esul
toftheirhavingtomakeadditi
onalc
hoi
ce s
.
b.apr oduct-
variet
ye xternali
tyissaidtooc cur
.
c. anadve rti
singexternalit
yissaidtooc cur.
d.c onsume rsarelikelytoexpe r
iencene gat
iveconsumptione xt
ernal
iti
es.
ANSWER: b. aproduc t
-vari
etye xt
ernali
tyi ss
aidtooc c
ur.
TYPE:
61. A business
- st
eali
nge xt
ernalit
y
a.i sli
kelytobepuni s
he dunde rantit
rustlaws .
b.oc curswhe nonefirma tte
mpt stodupl i
cateexactl
yt hepr oductofadiffe
rentfirm.
c.i sconsideredtobeane xpli
citcostofbusinessinmonopol ist
ical
lycompe t
it
ivemar kets.
d.i sthene gati
veexternali
tyassociate
dwi the ntryofne w fir
msi namonopol ist
icall
ycompe tit
ivemar
ket
.
ANSWER: d. i
sthene gati
vee xt
ernalit
yas s
ociatedwi t
he ntryofne w fir
msinamonopol i
sti
call
ycompeti
ti
vemar
ket
.
TYPE:
62. Whe nincumbe ntfir

msl osecustome rsandprofit
sduet
oent
ryofane
wcompe
tit
or,a
a. predatorypr ic
ingexternali
tyoc curs
.
b.c onsumpt ione xt
ernali
tyoc c
urs .
c. business-s
teali
nge xter
nalit
yoc curs.
d.pr oduc t
-variet
ye xt
ernalit
yoc curs.
ANSWER: c. bus iness
-st
ealingexternali
tyocc
urs.
TYPE:
63. Whe nt helossf rom abus iness

-st
eali
nge xternal
ityexceedsthegainfrom apr
oduct-
var
iet
yext
ernal
it
y,
a. fir
msar emor eli
kelytoope ra
teateffici
entscale.
b.t herearel ikelytobetoomanyfir msi namonopol i
sti
cal
lycompe ti
ti
vemarket
.
c. mar keteffici
e nc
yi sli
ke l
ytobee nhanc edbyt heentryofnew fir
ms .
d.t hemar ke tstructureisli
kelytobeint ransit
ion.
ANSWER: b. t
he r
ear eli
kelytobet oomanyfir msi namonopol is
tical
lycompeti
ti
vemarket
.
TYPE:
64. Theent r
yofne w fir
msi nt
oamonopol ist
icall
ycompe t
iti
vemar
keti
sac
compani
edby
a. bothpos i
ti
veandne gat
iveexternal
it
ies.
b.onl ypos i
ti
vee xte rnali
ti
e s
.
c. onlynegativee xternali
ties.
d.onl yprivatepr ofitoppor t
uniti
es(noe xter
nali
ti
es).
ANSWER: a. bothpos iti
veandne gat
iveexternal
it
ies.
TYPE:
65. Thepr oduct-

varietye xte
rnali
tyas s
ociat
edwi thmonopoli
sti
ccompeti
ti
onar
ise
sbe caus
einmonopoli
sti
cal
ly
compe ti
ti
vemar ke ts,
a. fir
mspr oducewi thexcesscapacit
y.
b.firmst rytodi ffer
entia
tetheirproducts.
c. fir
mswoul dliket oproducehomoge ne ouspr
oducts
,butthelar
genumberoffir
mspr ohi
bit
sit
.
d.e ntryande xiti snotrest
ric
ted.
ANSWER: b. fir
mst rytodiffe
rentia
tetheirproduc
ts.
TYPE:

lOMoARcPSD|32204997
Us
ethef
oll
owi
ngi
nfor
mat
ionf
orques
tions66and67
.
Vaca
tionI
nnsofAmeri
ca(VIA)hasrece
ntlyannounce
dint
enti
onsofbui
ldi
ngane w hot
el/r
esor
tcomplexi
nMyr tl
eBe
ach,
Sout
hCaroli
na.As
sumethatthehot
el/res
ortmarketi
nMyrtl
eBeachisc
harac
ter
izedbymonopol i
sti
ccompet
it
ion.
66. Asar esultofthene w VIA hotel

/res
ort,t
our istswhos t
ayinMyrtl
eBe
achar
eli
kel
ytoe
xpe
rie
ncea
a. produc t
-varie
tyexternali
ty,whic
hhar msc onsume r
s.
b.pr oduc t
-varie
tyexternali
ty,whic
hbe nefitsconsume rs
.
c. business-s
teali
nge xt
ernalit
y,whichharmsc onsume rs
.
d.bus iness-s
teali
nge xt
ernalit
y,whichbene fit
scons ume rs.
ANSWER: b. pr oduct
-vari
etye xt
ernal
it
y,whic hbe nefitsconsume
rs.
TYPE:
67. Exis
tinghote ls
,mot e
ls,andl odgingfac
ili
ti
esi
nMyr
tleBe
achar
eli
kel
ytoe
xpe
rie
ncewha
tki
ndofe
xte
rnal
it
yasa
res
ultofthene w VIA hotel/res
ort?
a. product-
var iet
y
b.bus iness
- st
eali
ng
c.c ompe t
itive
d.adve rti
sing
ANSWER: b. bus ines
s-st
ealing
TYPE:
68. Inamonopol ist

icall
yc ompet
it
ivei
ndus
try
,fir
ms’de
mandc
urve
sal
sor
epr
ese
nt
a. mar ginalrevenue.
b.mar ginalcost.
c.a veragere venue.
d.pr ofit
.
ANSWER: c. averagerevenue
.
TYPE:
1
69. Whe nane w fir

me ntersamonopolis
tic
allycompe t
it
ivemarket
,thei
ndivi
dualde
mandc
urve
sfac
edbyal
lexi
sti
ng
fir
msi nthatmar ketwill
a.s hif
ttothelef t
.
b.s hif
ttother i
ght .
c.s hif
tinadi recti
ont hati
sunpredi
ctablewithoutfurt
herinf
ormat
ion.
d.r emainunc hange d;onlythes
upplyc urvewills
hift
.
ANSWER: a. shif
tt otheleft
.
TYPE:
70. Whe nafirme xit

samonopol i
sti
cal
lycompe t
it
ivemarket,t
heindi
vidualde
mandc
urve
sfac
edbyal
lexi
sti
ngfir
msi
n
tha
tmar ketwill
a.s hif
tinadi rec
tiont hati
sunpr e
dic
tablewithoutfur
therinf
ormati
on.
b.s hif
ttother i
ght.
c.s hif
ttotheleft.
d.r emainunc hange d;onlythesuppl
yc urvewills
hift
.
ANSWER: b. shi
fttot her i
ght.
TYPE:
71. Long-runprofitear
ne dbyamonopol ist
ical
lycompet
it
ivefir
misdr
ive
ntot
hec
ompe
tit
ivel
eve
lduet
oa
a.c hangeinthet e
chnologyt hatt
hefir
m util
ize
s.
b.s hif
tofit
sde mandc ur ve.
c.s hif
tofit
ss upplycurve .
d.Noneoft heabovear ec or
rec
t.
ANSWER: b. s
hiftofitsdemandc urve.
TYPE:

lOMoARcPSD|32204997
72. Int
hel ongr un,amonopol isti
call
yc ompeti
ti
vefir
m pr
oduc
esaquant
it
ytha
tis
a.e qualtothee ffici
e nts cale.
b.l esst
hant hee ffic
ie ntsc al
e.
c. great
erthant hee ffic
ients cal
e.
d.c onsi
stentwit hdi s economi esofs c
ale
.
ANSWER: b. lesst
hant hee ffic
ientscale
.
TYPE:
M DI FFI
73. Becauseamonopol ist

ical
lyc
ompeti
ti
vefir
m hass
omemar
ketpowe
r,i
nthel
ong-
runt
hepr
iceofi
tsgoode
xce
edsi
ts
a.a veragerevenue .
b.a veragetotalcost
.
c. mar ginalc
os t
.
d.pr ofitperunit.
ANSWER: c. marginalcost
.
TYPE:
1
74. Whi chofthefoll

owingmarke
tsi
mpos
ede
adwe
ightl
oss
esons
oci
ety?
(i
)pe r
fectc
ompe ti
ti
on
(i
i)monopolisti
ccompeti
ti
on
(i
ii)monopoly
a.( i
)and( i
i)
b.( ii
)and(ii
i)
c.( i
)and( i
ii
)
d.( i
)only
ANSWER: b. (i
i)and(i
ii
)
TYPE:
M DI FFICULTY:2SECTION:17.
1
75. Whichofthefoll
owinggoodsaresol
dinamonopol
is
tic
all
ycompe
tit
ivemar
ket
?
a.compac tdis
cs
b.whe a
t
c.corn
d.posta
ges ta
mps
ANSWER:a. compactdis
cs
TYPE:
M DIFFI
CULTY:1SECTI ON:17.
1
76. Whic hofthef

oll
owi
nggoodsar
enots
oldi
nmonopol
is
tic
all
ycompe
tit
ivemar
ket
s?
a. CDs
b.books
c.c ookie
s
d.whe a
t
ANSWER: d. whea
t
TYPE:
M DI FFI
CULTY:1SECTI
ON:17.1
77. Monopol is
ticall
yc ompeti
ti
vemarke
tsdi
ffe
rfrom pe
rfe
ctl
ycompe
tit
ivemar
ket
sbe
caus
eof
(i
) t henumbe rofsel
ler
s.
(i
i) bar ri
erstoe ntr
y.
(i
ii
) pr oductdiffere
nti
ati
onamongthesel
ler
s.
a.( i
i)only
b.( i
ii)onl
y
c.( i
)and( ii
i)
d.( i
i)and( i
ii)
ANSWER: b. (iii
)only
TYPE:
1

lOMoARcPSD|32204997
78. A fir
mi namonopol i
sti
call
ycompe t
iti
vemarketissimil
artoamonopol
yint
hes
ens
etha
t
(i
) t heybothfacedownwar d-s
lopi
ngde mandc urves
.
(i
i)t heybothchargeapr i
cethatex
ceedsmarginalcost
.
(i
ii
)bot hmar ket
sarecharact
eri
zedbyf r
eeentr
yande xi
t.
a.( i)only
b.( ii)only
c.( i)and( i
i)
d.( i)and( i
ii
)
ANSWER: c . (i
)and(ii
)
TYPE:
79. A monopolis
tic
all
ycompe ti
tivefir
m’sc
hoi
ceofout
putl
eve
lisvi
rtual
lyi
dent
icalt
othec
hoi
cema
debya(
n)
a. perf
ect
lycompe t
it
ivefir
m.
b.duopol i
st.
c. monopolis
t.
d.oligopol
ist
.
ANSWER: c
. monopol i
st.
TYPE:
80. New firmswi llne ce

ssaril
yenteramonopol
is
tic
all
ycompe
tit
ivemar
ketwhe
npr
icee
xce
eds
a. mar ginalre venue.
b.a veragere ve nue.
c. mar ginalcos t.
d.a veragetot alc os
t.
ANSWER: d. ave ragetotalcos
t.
TYPE:
81. Whicht woc ur

vesaretange
nttooneanot heri
namonopol
is
tic
all
ycompe
tit
ivemar
ketwi
thze
roe
conomi
cpr
ofit
?
a. demandanda ve
ragevari
ablecost
b.de mandanda ve
ragetot
alcost
c. mar gi
nalreve
nueanda ver
agevar i
ablecos
t
d.mar gi
nalreve
nueanda ver
agetotalcost
ANSWER: b. demandanda vera
getotalcost
TYPE:
82. A downwar d-slopingdemandc urve

a.isaf eat
ur eofallmonopoli
stic
all
ycompe ti
ti
vefir
ms .
b.me ansthatthefirminquest
ionwi l
lneverexpe
r i
enceaze roprofit
.
c.c ausesmar ginalre
venuetoexceedprice
.
d.Al loftheabovear ecorr
ect
.
ANSWER: a. isaf eat
ureofal
lmonopol i
sti
cal
lycompe t
it
ivefir
ms .
TYPE:
83. Exc
esscapac i
ty
a.tell
se c
onomi stslit
tl
eaboutt hede s
irabil
ityofamarketoutc
ome .
b.isthepr imarys ourceofmar ketine
ffic
iencyinmonopolis
tic
all
ycompet
it
ivemar
ket
s.
c.isac haract
e r
isti
cofr i
singaverage-
total
-costcur
ves.
d.issolel
yac haract
erist
icofmar kuppr i
cing.
ANSWER: a
. tel
lseconomi st
slit
tl
eaboutt hede si
rabi
li
tyofamar ke
toutc
ome.
TYPE:
84. Inamonopol i
s t
icall
ycompe ti
ti
vemar ket
,
a.t hereareonl yaf ewsell
ers
.
b.e achfirmt akesthepr i
ceofit
spr oduc tasgi
ve n.
c. fir
msc ane nterore xi
tthemar ketwi t
houtrestri
cti
on.
d.e achfirm produc esaproductt hatisesse
nti
allyident
icalt
ot hepr
oduc
tsofot
herfir
msi
nthemar
ket
.
ANSWER: c. fir
msc ane nt
erorexitthemar ketwithoutres
trict
ion.
TYPE:

lOMoARcPSD|32204997
85. A monopol i
sticall
ycompe t
iti
vemarket
a. hassomef eat
uresofmonopolyands omef e
ature
sofcompe t
it
ion.
b.hasonel arge,dominantfir
m andmanyot hersmall
erfir
ms.
c.i sver
ydi ffic
ulttoent
e r
.
d.Al loftheabovear ecorrect
.
ANSWER: a. hass omefeaturesofmonopolyands omefeat
uresofcompet
it
ion.
TYPE:
M DI FFI
86. Inbothpe r
fectcompetit
ionandmonopol i
sti
ccompetition,
a.e achfir
mi s,inmanywa ys
, l
ikeamonopol y.
b.e achfir
ms ellsaproductthatisatle
astsl
ightl
ydiffe
r e
ntfr
om t
hos
eofot
herfir
ms.
c.e achfir
mf acesadownwar d-sl
opingdemandc ur
ve .
d.the rearemanys el
lers.
ANSWER: d. therearemanys el
lers.
TYPE:
87. Exampl e
sofmonopol i
stic
all
yc ompet
it
ivemar
ket
sinc
ludet
hemar
ket
sfor
a.re st
aurantsandfurni
ture.
b.booksandmovi es.
c.cooki esandrest
aurants.
d.Al loftheabovearecorrect
.
ANSWER: d. Alloft
heabovear ecor
rect
.
TYPE:
88. Exampl esofmonopolis

tic
all
ycompe
tit
ivemar
ket
sdonoti
ncl
udet
hemar
ketf
or
a. pianolessons
.
b.s oybeans.
c.c ookies.
d.voi celes
sons.
ANSWER: b. soybeans
.
TYPE:
1
89. Fore
xisti
ngfir msinamonopol ist
ical
lyc ompeti
ti
vemar ke t
,
a.stra
tegici nt
erac
tionsamongt hefirmsareveryimpor tant.
b.thethrea tofentr
ybyne w fir
msi snotani mport
antc onsider
ati
on.
c.theattainme ntofaNas hequili
brium isanimportantobjecti
ve.
d.Noneoft heabovear ecor
rect.
ANSWER:d. Noneoft heabovearec orre
ct.
TYPE:
90. Eac
hfirmi namonopol i
sti
callyc ompe ti
tivefir
mf acesadownwar d-s
lopingdemandcurvebe
caus
e
a.therearemanyot hersel
lersint hemar ket
.
b.thereareve r
yf ew ot
hers ell
er sint hemar ket.
c.thatfir
m’ sproductisdiffe
r e
ntf rom t hoseoffere
dbyot herfirmsint hemarket
.
d.thatfir
mf acesthethreatofe nt r
yi ntot hemarke tbyne w fir
ms .
ANSWER:c. t
hatfir
m’ sproduc tisdi ffe
rentf r
om thos eoffe
redbyot he
rfirmsinthemarket
.
TYPE:
91. Bot
hmonopol ist
iccompe ti
tionandol i
gopolyaremar ketst
ruct
ures
a.thatl
iebe t
we entheextremec asesofcompe t
iti
onandmonopol y.
b.thatf
eatureonlyaf ew fir
msi neachmar ket.
c.towhicht heconceptofNas he quil
ibr
ium isfrequent
lyappli
edbyec
onomis
ts.
d.Alloftheabovear ecorrect.
ANSWER:a. thatl
iebe t
we enthee xt
remec as
e sofcompe t
it
ionandmonopol
y.
TYPE:
M DIFFI

lOMoARcPSD|32204997
92. Whe namar ke tismonopol isti

cal
lycompe t
iti
ve,t
hetypicalfir
mi nthemar keti
sli
kelyt
oexpe
rie
ncea
a. posit
ivepr ofitinthes
hor trunandi nt helongrun.
b.pos it
iveorne gati
veprofiti
nthes hortrunandaze roprofiti
nthel ongrun.
c. zeroprofitint heshor
trunandapos i
t i
veorne ga
tiveprofiti
nthel ongrun.
d.ze roprofitint heshor
trunandi nthel ongrun.
ANSWER: b. pos i
tiveornegativeprofiti
nt heshortrunandaze roprofiti
nthelongrun.
TYPE:
M DI FFI
93. Amongt hef ol

lowi ngs it
ua ti
ons,t heonet ha
tisle
astl
ike
lyt
oappl
ytoamonopol
is
tic
all
ycompe
tit
ivefir
mist
hati
n
which
a. profitispositiveint hes hortr un.
b.t otalcostexce edstotalrevenuei ntheshortr
un.
c. profitispositiveint helongr un.
d.t otalrevenuee qualstotalcosti nthelongrun.
ANSWER: c. profitispos i
tiveint hel ongrun.
TYPE:
94. Tomaximizeitsprofit
,amonopolist
icall
ycompe tit
ivefirm
a.takesthepric
easgi venanditchoos e
sitsquantity,j
ustasacompeti
ti
vefir
m does.
b.takesthepric
easgi venandchoose sit
squant i
ty,jus
tasacoll
udingoli
gopoli
stdoe
s.
c.choosesit
squant it
yandpr i
ce,j
ustasac ompeti
tivefir
m doe
s .
d.choosesit
squant it
yandpr i
ce,j
ustasamonopol ydoes.
ANSWER:d. choosesitsquant
it
yandpr ic
e,justasamonopol ydoes.
TYPE:
95. Tomaximi zeit

sprofit
,amonopol ist
icallycompe tit
ivefir
mc hoose sit
slevelofoutputbyl
ooki
ngf
ort
he
a.inte
r s
ec t
ionofthedemandc ur veandt hemar ginalcostc
ur ve
.
b.inte
r s
ec t
ionofthemarginalrevenuec urveandt hemar ginalcostcurve.
c.levelofoutputatwhichmar ginalr evenuee qualszero.
d.levelofoutputatwhicha ver
aget otalcostismi nimized.
ANSWER:b. i
nters
ecti
onofthemar ginalr evenuec urveandt hemar gi
nalcostcurve.
TYPE:
96. Whenwec ompar ediagramsforfirmsindiffer

entma rketstructures
, wes eethat
a.forcompe t
itivefir
msandmonopol i
sti
call
yc ompetiti
vefirms ,t
her evenuec urvesares i
mi l
arbutt hec ostcurves
arequit
edi ffere
nt.
b.forcompe t
itivefir
msandmonopol i
sti
call
yc ompetiti
vefirms ,t
hec ostcurvesar esimil
arbutt here venuec urves
arequit
edi ffere
nt.
c.formonopol yfirmsandmonopol ist
ical
lycompe t
itivefir
ms ,ther evenuecur vesaresimilarbutthec ostcurvesar
e
quitedi
ffer
e nt.
d.formonopol yfirmsandmonopol ist
ical
lycompe t
itivefir
ms ,thec ostcurvesar esi
mi l
arbutt hereve nuec urvesar
e
quitedi
ffer
e nt.
ANSWER:b. f
orc ompe t
it
ivefir
msandmonopol i
sti
cal
lyc ompe t
itivefirms,thecos tcurvesaresimilarbutt her e
venue
curve sarequitediffe
rent
.
TYPE:
97. Foramonopol i
stic
all
ycompe t
it
ivefir
m,
a. mar ginalrevenueandpr i
cearethesamequanti
ty.
b.a verager evenueandpr i
cearethesamequanti
ty.
c.a tthepr ofit
-maximizingquanti
tyofoutput
,pri
cee qual
smargi
nalcos
t.
d.a tthepr ofit
-maximizingquanti
tyofoutput
,marginalreve
nueexc
eedspri
ce.
ANSWER: b. averagereve
nueandpr icear
ethesamequa ntit
y.
TYPE:
98. Foramonopol ist

ical
lyc ompe t i
tivefir
m,a tt
hepr
ofit
-maxi
mizi
ngquant
it
yofout
put
,
a. pri
cee xc
eedsmar ginalr evenue .
b.mar ginalrevenuee xceedsmar ginalcost
.
c. marginalcostexceedsa verager evenue.
d.Al loftheabovear ec orre
c t.
ANSWER: a
. pri
cee xc
eedsmar ginalrevenue.
TYPE:

lOMoARcPSD|32204997
99. Ignori
ngol igopolyandfocusingont heotherthreetypesofmarkets
truc
tur
e,i
nwhi
choft
hos
emar
kets
truc
tur
es
doesapr ofit-
maximizingfir
mc hargeapricethatexce
edsmarginalc
ost?
a. monopol yonly
b.monopol yandmonopol isti
cc ompeti
tiononly
c. monopol y,monopoli
sti
cc ompe ti
ti
on,andpe rf
ectcompeti
ti
on
d.I tdependsonwhe therwear eintheshortrunorthelongrun.
ANSWER: b. monopolyandmonopol i
sti
ccompe ti
ti
ononl y
TYPE:
100. Ignori
ngol igopolyandf ocus
ingont heothert hreet ypesofmar kets
tructur
e,i
nwhi
choft
hos
ema
rke
tst
ruc
tur
es
doesapr ofit-maxi
mi zi
ngfirme xperie
nceaze roe conomi cprofit
?
a. perfe
c tcompe ti
ti
ononl y
b.pe rfe
c tcompe ti
ti
onandmonopol i
sti
ccompe t
itiononl y
c. perfe
c tcompe ti
ti
on,monopol i
sti
ccompetition,andmonopol y
d.I tdepe ndsonwhe t
he rwear eintheshortr unort hel
ongr un.
ANSWER: d. Itdependsonwhe t
he rweareint hes hor trunorthelongr un.
TYPE:M DI FFICULTY:2SECTI ON:17.1
101. Animpor t
antdiffe
rencebetwe enthes ituationfacedbyapr ofit-
maximi zingmonopol is
t i
call
ycompe
tit
ivefir
mint
he
shortrunandt hes i
tuat
ionf ac
e dbyt hats amefirmi nthelongr unist ha tinthes hortrun,
a. pricema yexceedmar ginalrevenue ;inthel ongrun,priceequalsmar ginalr e
ve nue.
b.pr icema yexceedmar ginalcost
; i
nt hel ongr un,pri
ceequal smargi nalc ost.
c. pricema yexceedaveragetotalcost;int helongr un,pri
cee qual
sa ve ragetotalc os
t.
d.t herearemanyfir msint hemar ket;int helongr un,the
rear eonlyaf ew firmsi nthemar ket.
ANSWER: c. pri
cema yexceeda vera
get otalc os
t;inthelongr un,pri
cee qual sa veragetotalcost
.
TYPE:M DI FFICULTY:2SECTI ON:17. 1
102. Supposethatmonopol ist

icall
ycompe t
it
ivefirmsinac er
tai
nmar ketareearningposit
ivepr
ofit
s.I
nthet
rans
iti
on
fr
om thisini
tialsi
tua ti
ont oalong- r
une qui
libri
um,
a.thenumbe roffirmsint hemar ketdecreases
.
b.e achincumbe ntfirme xpe r
iencesade cr
e as
einde mandf ori
tsproduct.
c.e achincumbe ntfirme xpe r
iencesar i
ghtwardshiftofit
smar gi
nalrevenuec ur
ve.
.
ANSWER: b. eachinc umbe ntfir
me xperi
encesade c
reaseinde mandforitsproduct.
TYPE:M DI FFI
103. Supposet hatmonopol i

sticall
ycompe t
iti
vefirmsinac e
rtai
nmar ketaree
xpe r
ienci
nglos
ses
.Int
het
rans
iti
onf
rom
thi
siniti
als i
tuati
ont oal ong-rune quil
ibrium,
a.t henumbe roffirmsi nt hemar ketdecreases.
b.e achinc umbe ntfir
me xpe r
iencesade creasei
nde mandf ori
tsproduct
.
c.e achfirme xpe r
iencesupwar ds hi
ftsofitsmargi
nal-cos
tanda ver
age-
total
-cos
tcur
ves.
d.Al loft heabovear ecor rect
.
ANSWER: a. thenumbe roffir msi nthemar ke tde
cre
ases.
104. Whe namonopoli

sti
cal
lyc ompeti
ti
vefirmi sinlong-r
unequi
li
bri
um,
a. margi
nalre
venueise qualtomar ginalc
os t
.
b.mar gi
nalre
venueise qualtoaveragetotalcost
.
c. margi
nalre
venueise qualtoprice.
d.pr i
ceise
qualtomar ginalcos
t.
ANSWER: a. margi
nalrevenuei sequaltomar ginalcos
t.
TYPE:M DIFFICULTY:2SECTI ON:17. 1
105. Whe namonopol is

tic
all
yc ompe t
it
ivefir
misi
nlong-
rune
qui
li
bri
um,
a. priceise
qualtoaveragetot
alcost
.
b.pr iceexc
eedsmarginalcost
.
c. priceexc
eedsmarginalrevenue.
d.Al loftheabovearecorrect
.
ANSWER: d. Alloft
heabovear ecorre
ct.

lOMoARcPSD|32204997
106. Whichofthesetypesoffirmsc anearnapos it

iveeconomi cprofitinthelongr un?
a. monopol
ies,butnotc ompe ti
ti
vefir
msormonopol is
tic
all
yc ompe ti
ti
vefirms
b.monopoliesandmonopol isti
call
ycompe ti
tivefirms,butnotc ompetit
ivefirms
c. monopol
ies,monopol is
tic
allycompe t
iti
vefirms ,andmonopol i
es
d.Noneoft heabovear ecorrect.
ANSWER: a
. monopol i
es,butnotc ompe t
it
ivefirmsormonopol i
stical
lycompe tit
ivefir
ms
107. “I
nalong-r
une quil
ibrium,pric
ei sequaltoaveragetotalcost.
”Thissta
tementappl
iesto
a.competi
tivemarke t
s,butnottomonopol ist
icall
ycompe ti
ti
vemar ket
sormonopolie
s.
b.competi
tiveandmonopol ist
icall
yc ompetit
ivemar kets,butnottomonopoli
es.
c.competi
tiveandmonopol ist
icall
yc ompetit
ivemar ketsandt omonopoli
es.
d.Noneoft heabovear ecor
rect
.
ANSWER: b. c
ompe ti
tiveandmonopol i
sti
call
ycompe t
iti
vemar kets
,butnottomonopolies
.
TYPE:M DIFFI
108. Foraprofit
-maximi zingmonopoli
stic
allyc ompet
it
ivefir
m,pr
icee
xce
edsmar
ginalc
ost
a.inthes hortrunbutnoti nthelongr un.
b.inthel ongrunbutnoti ntheshortr un.
c.inbotht heshor trunandthelongr un.
d.inne i
therthes hor tr
unnorthelongr un.
ANSWER: c
. i
nbot ht heshor
trunandt hel ongrun.
TYPE:M DIFFICULTY:2SECTI ON:17.1
109. Entryande xi
tdr i
veeachfirminamonopol is
tic
all
yc ompetit
ivemar
kett
oapoi
ntoft
ange
ncybe
twe
eni
ts
a. mar gi
nalrevenuecurveandi t
st otal-
costcurve
b.mar gi
nalrevenuecurveandi t
sa ve r
age-t
otal-
costcurve
.
c. demandc ur veandit
stotal-
costc urve.
d.de mandc ur veandit
sa ver
age-t
ot al-
costcurve.
ANSWER: d. demandc urveandi t
sa ve r
age-t
otal-
costcurve.
110. Thepoi ntoftangencywhi c

hc haract
eri
zeslong-rune quil
ibrium foramonopol i
stic
all
ycompe
tit
ivefir
m al
ways
occ
ursa tac ert
ainlevelofoutput ;c
allt
hatlevelofoutputQ1. ThenQ1
a.e x c
e e
dst heleve
lofout puta twhichmar gi
nalre venuee qualsmarginalcos
t.
b. ex c
e e
dst heleve
lofout puta twhichmar gi
nalc ostequalsaveragetotalc
ost
.
c. fall
ss hortofthel e
velofoutputa twhichmar ginalrevenuee qualszero.
d.Al loft heabovear ecorrec
t.
ANSWER: c. f
all
sshor tofthelevelofoutputatwhi c
hmar ginalrevenueequalszero.
111. Foranyfirm,a vera getotalcos

tisminimizedatac e
rt ainle
velofoutput;c allthatl
evelofoutputQ1.Fora
monopol isti
call
yc ompe titi
vefir
minl ong-
rune qui
librium,Q1
a.isal sotheleve lofout putatwhichmarginalcoste qual
sa ve
ragetotalc ost.
b.e xceedst heleve lofoutputatwhichthereisapoi ntoftangencybe t
we enthede mandc urveandthea
ver
age
-
t
ot al
-costcurve .
c.e xceedst heleve lofoutputatwhichmar gi
nalreve nueequalsmar ginalc ost
.
t.
ANSWER: d. Alloft heabovear ecor
rect.
112. Inasituationoflong-rune quil

ibri
um,
a. ape rf
ec t
lycompe ti
ti
vefirm ope ra
tesati
tsefficientsc ale
.
b.amonopol is
tic
all
yc ompe ti
tivefir
m operat
esa ti
tse ffic
ientscal
e.
c. neitherac ompetit
ivefirm noramonopol is
tic all
yc ompe ti
ti
vefir
mchar
gesamar
kupove
rmar
ginalc
ost
.
t.
ANSWER: a
. aperfect
lycompe tit
ivefir
m operat
esa titseffici
entscal
e.
TYPE:M DIFFI CULTY:2SECTI ON:17. 1

lOMoARcPSD|32204997
113. Inas i
tuati
onoflong- r
une quil
ibrium,thete
rm
a.“ excesscapac
ity”appl iestomonopol i
sti
cal
lyc
ompe ti
ti
vefir
ms ,butnottocompe ti
ti
vefir
ms .
b.“ zeroe c
onomicpr ofit
”appl iestocompeti
ti
vefir
ms,butnottomonopol is
tic
all
yc ompetit
ivefir
ms .
c. “mar kupovermar ginalc ost
”appliestobot
hmonopol i
sti
cal
lycompe ti
ti
veandc ompe t
iti
vefirms.
d.Al loftheabovear ec orrect
.
ANSWER: a. “exce
ssc apacity”appl i
estomonopoli
sti
cal
lycompe t
it
ivefir
ms,butnottoc ompe t
it
ivefir
ms .
114. Fi
rm Ai sape rf
ectl
yc ompe t
it
ivefir
m.Firm Bisamonopol i
sti
cal
lycompe t
iti
vefir
m.Bothfir
msar ecur
rent
ly
maximi zingtheirrespecti
veprofit
s.Whichofthefoll
owi ngstat
ementsiscorrec
t?
a. BothFi rm A andFi rm Bwoul dbeeagertomakeanaddi t
ionals
ale.
b.Fir m Awoul dbee agertomakeanaddi ti
onalsale,butFirm Bwouldnotc arewhet
heritmadeanaddi t
ionals
ale
ornot .
c. Fi
r m Bwoul dbee agertomakeanaddi ti
onalsal
e ,
butFirm Awoul dnotc arewhet
heritmadeanaddi t
ionals
ale
ornot .
d.Ne i
the rFir
m A norFi rm Bwoul dcar
ewhe the
rt heymadeanaddi t
ionalsal
eornot.
ANSWER: c. Fir
m Bwoul dbee agertomakeanaddi t
ionalsale,
butFirm Awoul dnotcar
ewhe t
heritmadean
additi
onals al
eornot.
115. Inamonopol i
sti
cal
lyc ompe titi
vemar ket,
a.theentryofne w fir
msc re at
ese xt
ernal
iti
es.
b.theabsenceofrest r
icti
onsone ntrybyne w fir
mse nsur
est
hatther
ewi llbenodeadweightlos
s.
c.therear
eal waystoomanyfir msinthemar ke trel
ati
vet
othesoci
all
y-optimalnumberoffir
ms .
d.Noneoft heabovear ecorrect.
ANSWER: a. theentryofne w fir
msc r
eat
esexternalit
ies.
116. Ent
rybyne w fir
msi nt
oamonopol is
tical
lycompe t
it
ivemar
ket
a.createsnewc onsumers urpl
us .
b.impos esapos i
ti
veexternali
tyone xis
tingfir
ms.
c.leadstothes ameexternali
ti
est hatareobse r
vedwhennew fir
mse
nte
rape
rfe
ctl
ycompe
tit
ivemar
ket
.
d.Al loftheabovear ecorrect.
ANSWER: a. cr
e at
e snewcons ume rsurplus.
117. A monopol
is
tic
all
ycompe
tit
ivefir
mfac
est
hef
oll
owi
ngde
mandc
urvef
ori
tspr
oduc
t:
Pr
ice(
$) 10 9 8 7 6 5 4 3 2 1
Quant
it
y 2 4 6 9 10 12 14 16 18 20
Thefirm hast
otalfix
edc ostsof$20andac onstantmarginalcostof$2peruni
t.Thefir
m wi
ll
a. producenineuni t
s;fir
mswi llente
rthemar ketint
hel ongr un.
b.pr oduce10units;fir
mswi l
lenterthemarketinthelongr un.
c. produce12units;fir
mswi l
lenterthemarketinthelongr un.
d.pr oduce10units;fir
mswi l
lexitt
hemar ketinthel
ongr un.
ANSWER: a. pr
oduc enineuni t
s;fir
mswi lle
nterthema rketinthelongrun.
TYPE:

lOMoARcPSD|32204997
118. A monopol
is
tic
all
ycompe
tit
ivefir
mfac
est
hef
oll
owi
ngde
mandc
urvef
ori
tspr
oduc
t:
Pr
ice(
$) 10 9 8 7 6 5 4 3 2 1
Quant
it
y 2 4 6 8 10 12 14 16 18 20
Thefirm hastot
alfix
edc ostsof$20andac onst
antmar ginalcostof$5pe
runi
t.Thefir
m wi
ll
a. producetwouni ts;firmswi l
le xitthemar ketinthelongr un.
b.pr oducefourunits;firmswi llexitthemar ketinthelongr un.
c. producesixunits;firmswi l
le xitthemar ketinthelongr un.
d.pr oduceeightunits;firmswi llenterthemar ketinthel ongrun.
ANSWER: c. produce6uni ts
;fir
mswi l
lexitthemar keti
nt helongrun.
TYPE:
119. A monopol
is
tic
all
ycompe
tit
ivefir
mfac
est
hef
oll
owi
ngde
mandc
urvef
ori
tspr
oduc
t:
Pr
ice(
$) 10 9 8 7 6 5 4 3 2 1
Quant
it
y 2 4 6 8 10 12 14 16 18 20
Thefirm hast otalfixedcos t

sof$40andac onstantmar
ginalc
ostof$2pe
runi
t.Wec
anc
onc
ludet
hat
a. fir
mswi llexitthismar ket.
b.firmswi llenterthismar ke t.
c.t hismar ketisinl ong-rune qui
libr
ium.
d.t hisfir
mi soper a
tingate ffici
entscale.
ANSWER: c. thismar ketisinl ong-rune quil
ibr
ium.
TYPE:
120. A fir
m hast
hef
oll
owi
ngc
osts
truc
tur
e:
Out
put 1 2 3 4 5 6 7
Tot
alCost
($) 30 32 36 42 50 63 77
Ift
hisfirmisinat ypic
almonopol ist
ical
lyc
ompet
it
ivemarke
t,i
twi
lll
ikel
ypr
oduc
e
a.fourorf ewe runit
sofout put
.
b.fiveuni t
sofout put.
c. mor ethanfiveunit
sofout put.
d.Noneoft heabovear ecorrec
t;therei
snote
noughinf
ormati
ont
otell
.
ANSWER: a. 4orf ewerunitsofoutput.
TYPE:
121. A fir
m hast
hef
oll
owi
ngc
osts
truc
tur
e:
Output 1 2 3 4 5 6 7
Tot
alCost
($) 30 32 36 42 50 63 77
Ift
hisfirmisinat ypi
calper
fect
lycompet
iti
vemar
ket
,int
hel
ongr
uni
twi
lll
ike
lypr
oduc
e
a. 4orf ewerunit
sofoutput.
b.5uni t
sofoutput.
c. mor ethan5uni t
sofoutput.
d.t hereisnotenoughinfor
ma t
iontot
ell
.
ANSWER: b. 5unitsofoutput.
TYPE:

lOMoARcPSD|32204997
122. A monopol
is
tic
all
ycompe
tit
ivefir
m hast
hef
oll
owi
ngc
osts
truc
tur
e:
Output 1 2 3 4 5 6 7
Tot
alCost
($) 30 32 36 42 50 63 77
Thefir
mfac
est
hef
oll
owi
ngde
mandc
urve
:
Pr
ice(
$) 20 18 15 12 9 7 4
Quant
it
y 1 2 3 4 5 6 7
Tomaxi mizeprofit(
ormi
nimi
zelos
ses
),t
hefir
m wi
llpr
oduc
e
a. 2units
.
b.3uni ts
.
c. 4units
.
d.5uni ts
.
ANSWER: b. 3units.
TYPE:
M DI FFI
CULTY:3SECTI ON:17.
1
123. A monopol
is
tic
all
ycompe
tit
ivefir
m hast
hef
oll
owi
ngc
osts
truc
tur
e:
Output 1 2 3 4 5 6 7
Tot
alCost
($) 30 32 36 42 50 63 77
Thefir
mfac
est
hef
oll
owi
ngde
mandc
urve
:
Pr
ice(
$) 20 18 15 12 9 7 4
Quant
it
y 1 2 3 4 5 6 7
Ift
hegover
nme ntfor
cesthisfir
mt oproduc
eati
tse
ffic
ients
cal
e,i
twi
ll
a. pr
oduce3unitsandmake$9 .
b.produce4unitsandmake$6
c. pr
oduce5unitsandlose$5.
d.produce7unitsandlose$49.
ANSWER: c
. pr
oduce5uni tsandl os
e$5.
TYPE:
M DIFFICULTY:3SECTION:17. 1
124. A monopol i
sti
callycompe t
it
ivefirmisc urrent lymaki ngapr ofit
.Ifot herfirmsent
ert
hemar
ket
,wewoul
dexpe
ct
tha
ttheadde dc ompe ti
tionwi l
lc aus
et hisfirmt oadj ustits
a. outputsotha titwilloperat
ec los
ert oitse ffic
ie nts cale.
b.out putsotha titwilloperat
ef urt
he rfrom i tse ffici
e ntsc al
e.
c. outputsotha titwillnolonge rbea tit
se fficients cale .
d.out put,butitmi ghtmovee itherclosertoorf ur therf r
om i tseffici
entsc al
e.
ANSWER: b. outputs othatitwilloperatefur the rfrom i tseffic
ients cal
e .
TYPE:M DI FFI
125. Se natorHubr iswantstopassala

wt hatwoul
drequi
real
lmonopol
ist
ical
lyc
ompeti
tivefir
mst ooper
ateatt
he i
r
effic
ientscale.Ift
hislaw we
retopassandbeenf
orce
d,wewouldexpectt
hatmonopoli
stic
all
yc ompet
iti
vefir
ms
woul d
a.s eetheirprofit
sincre
ase
.
b.br eakeve n.
c.l osemone y.
d.notr eall
ybeaffe ct
edbythelaw.
ANSWER: c. losemone y.
TYPE:M DI FFICULTY:3SECTI ON:17.
1

lOMoARcPSD|32204997
126. Whe nfirmss el

lhighlydiffe
rent
iat
edc
ons
ume
rgoodsi
tisl
ike
lyt
hatones
igni
fic
antc
ostt
oal
lfir
msi
s
a. adverti
sing.
b.fixedc osts
.
c.i nte
rme diat
ema terial
s.
d.t axesandr egula
tion.
ANSWER: a. adve r
tis
ing.
127. Whenadve rt
isi
ngisde c
eptive ,cri
ti
csclaimt hati
t
a.incr
easescompe ti
ti
oni nt hemar ket.
b.make sbuyersles
ss e
ns i
tivet opric
edi ffe
rence
samongs imi
larpr
oducts.
c.lowersthequalit
yofgoodsi nthemar ket.
d.alt
ersafirm'ssupplycur ve .
ANSWER: b. make sbuyerslesss ensi
ti
vet opr i
cediffe
renc
esamongsi
milarproduc
ts.
128. Cri
ticsclai
mt hatwhe nadve rt
isi
ngde creas
estheel
ast
ici
tyofde
mand,fir
msar
eabl
eto
a. becomemor ecompe t
itive
.
b.i ncr
easetheiradverti
singbudge t.
c.l owertheiradvert
isi
ngbudge t.
d.c hargealargermar k-
upove rmar ginalcos
t.
ANSWER: d. chargealargermar k-upove rmargi
nalcos
t.
129. Whe nadve r

tis
ingi susedtost
rengthenbrandl oyalt
y,
a. demandf orthepr oductbec
ome slesselasti
c.
b.de mandf orrelatedproduct
sistypical
lyunaffected.
c.c onsume r
sbe comemor esensi
tivetopricediffe
rencesamongs
imi
largoods
.
d.firmss houldlowe rpri
cetoincr
e as
er e
ve nue.
ANSWER: a. demandf ort
heproductbe come sles
selasti
c.
130. Advoc at
esforadve rti
singar guethattheeffic
iencyofmar ke
tsi
senhanc
edwhe
nadve
rti
sing
a.f ocusesoni ss
ue sotherthant hepricesofpr oducts.
b.isps ychologicalratherthaninforma t
ional.
c. decreasesthee l
astici
tyofde mandf orapr oduc t.
d.pr ovidesinforma t
iont hatisusefultoconsume r s
.
ANSWER: d. provide sinforma t
ionthatisuse f
ultoc onsumer
s.
131. Adver t
isingthatconve ysi
nformat
ionabouttheexis
tenceofne w pr oduc
ts
a. usuallyc onfus
e sconsume r
saboutmarketcompetit
ion.
b.e nhanc esthea bil
it
yofmar ket
stoall
ocat
ere s
ourceseffic
ientl
y.
c.r evealsinforma t
ionthatisofl
it
tl
evaluetoconsume rs
.
d.inc reaseselast
icit
yofde mand.
ANSWER: b. enhanc e
sthea bi
lit
yofmarketst
oal l
oca
teresour ceseffici
ent
ly.
132. Whe nadvertis

inge nhancest heabi
li
tyofmar ket
stoallocat
eresources
,itismos tl
ikel
yt obe
a.conve yi
ngi nfor
ma t
ionaboutpr i
ce,t
heexistenc
eofne w product
sorl ocati
onsofretailout
lets
.
b.addr ess
ingps ychologicalrat
herthaninf
orma ti
onalcharac
teri
sti
csoft hegood.
c. manipulati
ngpe ople'
stastes
.
d.increasi
nge last
icit
yofs upply.
ANSWER: a. conveyinginforma ti
onaboutpric
e ,t
hee xi
ste
nceofne w productsorloca
tionsofretailout
let
s.

lOMoARcPSD|32204997
133. Whenadve rt
isi
nge ncouragescustome rstobe c
omemor einfor
me daboutal
lfir
msi nthemar
ket
,
a.thedemandf oreachpartic
ularbr andint hemar ketisl
ikel
ytobecomelesselas
tic
.
b.fir
msar eabletofos t
erst
rongerbr andloyalty.
c.eachfir
mi slikel
yt ohavelesscont r
olove rthepriceofit
sproduct
.
d.themar ketpowe rofindi
vidualfirmsi sstrengthened.
ANSWER: c. eachfirmi sli
kel
ytoha velesscontroloverthepric
eofit
sproduct.
TYPE:M DIFFI
134. Advert
isinginmarketsforprofes
s i
onalser
vice
s(lawyers
,doctors,et
c.
)has
a. decr
easedinrecentyearsandc ompetit
ioninthesemarketshasbeenenhanced.
b.de cr
easedinrecentyearsandc ompetit
ioninthesemarketshasbeenreduced.
c.increasedinrec
entye ar
sandc ompeti
ti
onint hesemarke
tshasbe enenhanced.
d.increasedinrec
entye ar
sandc ompeti
ti
onint hesemarke
tshasbe enreduce
d.
ANSWER: c
. i
ncre
asedinr ec
e ntyearsandcompe t
iti
oninthesemar ket
shasbeene nhanc
ed.
135. Pr
ofe
ssionalorganizati
onsandpr oducergroupsha veanincent
iveto
a.rest
rictadvert
isinginor de
rtoenhancec ompeti
tiononthebas i
sofpr i
ce.
b.rest
rictadvert
isinginor de
rtoreducecompe ti
ti
onont hebasisofpr i
ce.
c.encourageadve rti
singinordertoreducecompe ti
ti
onont hebasisofpric
e.
d.encourageadve rti
singinordertoenhancecompe ti
ti
onont hebas i
sofprice
.
ANSWER: b. r
est
rictadve r
tis
inginordertoreducecompe t
iti
onont hebas i
sofpric
e.
136. Whe nfirmsinamonopol ist

ical
lycompe ti
ti
vemarketengageinpric
e-re
lat
edadvert
isi
ng,de
fende
rsofadve
rti
sing
ar
guet hat
a.t hequalit
yofpr oductssoldint hemarketal
waysincreas
es.
b.c ustomersarelessli
kelytobei nformedaboutot
herc har
acte
ris
tic
softheproduct
.
c. new fir
msar ediscouragedfrom e nt
eri
ngthemarket.
d.e achfirm hasle
ssmar ketpowe r.
ANSWER: d. eachfir
m hasl essmarke tpower.
137. Cri
ticsofadve rti
singar guethatinsomemarketsadver
tis
ingmay
a.a tt
ractproduc tsoflowe rqualit
yint
othemar ket
.
b.a tt
ractl
essi nforme dbuye rsint
othemarke
t.
c. decre
asee lasti
c i
tyofde mand.
d.e nhancec ompe t
it
ioni nmar ket
stoanunnecess
arydegree
.
ANSWER: c. de cre
as eelasti
cit
yofde mand.
TYPE:M DI FFI
138. Int
hes tudydonebyLe eBe nham onadve r
tisi
ngforeyegl
asse
s,
a. adverti
singinc
re as
edt heavera
gepr i
ce.
b.adve rti
singdecreasedtheaveragepr i
c e
.
c.t herewasnodi ffer
enceinprice,butqual i
tywasbe t
teri
nthes t
ate
sthatdi
dn'tal
low adver
tis
ing.
d.adve rti
singappe ar
edtoha venoe ffectwha t
soeve
rinthestat
esthatpe
rmitt
edadvertis
ing.
ANSWER: b. advert
isingdec r
ease
dt hea veragepric
e.
139. ResultsofthestudydonebyLe eBe nham onadve r

tisi
ngfore yegl
asseswoul dsugge
stthat
a. brandloyaltyandmar ketpoweri nt heeyeglassma rketwasl i
kelytobemor epervas
iveins
tat
est
hatal
lowe
d
adverti
sing.
b.e yeglas
ss aleswer
emor eprofit
ablei nstat
est hatall
owe dadve r
tisi
ng.
c. optome tri
stswouldnotbesuppor tiveofadve rti
singrestr
ict
ions.
d.opt ome tri
stswouldenthusi
asti
callye ndorseadve rt
isi
ngr es
trict
ions.
ANSWER: d. opt
ome t
ris
tswoulde nthusiasti
cal
lye ndor s
eadve rt
isi
ngr est
ric
tions
.

lOMoARcPSD|32204997
140. Adverti
singthatusescel
ebritye ndorsementsismostlike l
yintende
dto
a.inc r
easeelast
ici
tyofdemandf ort
headve r
tise
dpr oduc t.
b.r e
duc etheabili
tyofmar ketstoallocat
eresource
se ffic
ient
ly.
c. provideas i
gnalofproduc tqualit
y.
d.beus e f
ulonlyforpsychologicaleffe
cts
.
ANSWER: c. provideasi
gnalofpr oductquali
ty.
141. Fi
rmst ha
tspendal ar
geamountofmone yonadve
rti
singapar
tic
ularpr
oduc
tar
eli
kel
ytobepr
ovi
dingc
ons
ume
rs
wit
h
a.informat
ionabouttheavail
abil
it
yoft hepr
oduct
.
b.informat
ionaboutproductpric
e.
c. asi
gnalofproductqual
ity
.
d.agoode xampl eofwast
edr e
sources
.
ANSWER: c
. asignalofpr
oductqualit
y.
142. Def
endersofadve r
tis
ingar
guet hati
tisnotr
ati
onalf
orpr
ofit
-maxi
mizi
ngfir
mst
ospe
ndmone
yonadve
rti
singf
or
pr
oductsthathave
a.superiorquali
ty.
b.infe
riororme diocr
equali
ty.
c.low pric
es.
d.limit
eda vai
labi
lit
y.
ANSWER: b. infe
riorormediocr
equality.
143. Onethe oryofadverti

sings uggest
sthat
a.informa t
iononpr iceisalwaysane cessaryingredientofeffe
cti
veadve
rti
sing.
b.thec ontentofadverti
singma ybei rre
levanttopr oductsuccessi
nthemarke t
.
c.celebrit
yadve rt
isi
ngi snoteffec
tiveinretai
lfoodmar ke
ts.
d.Pos tandKe ll
oggs houldnotadve rti
senewc er
eals.
ANSWER: b. thecontentofadve r
tis
ingma ybei rrel
eva ntt
opr oductsuc
ces
sint hemar
ket
.
144. Advertis
eme ntsthatappe art
oc onve ynoi nformati
ona tall
a. areusuallyassociat
edwi th"infome rcials.
"
b.ar emos tl
yuse l
e s
stoc onsume rs,butval uabl
etofir
ms .
c. aremos tl
yuse l
e s
stofirms ,
butval uabl etocons
ume r sforthe
irent
ert
ainmentquali
tyalone.
d.ma yconve yi
nfor mati
ontoc ons ume rsbypr ovi
dingt hem withasi
gnaltha
tfirmsarewi l
li
ngtos
pe ndsi
gni
fic
ant
amount sofmone ytoadve rt
ise.
ANSWER: d. ma yconve yinfor
ma tiont ocons umersbypr ovidingthe
m withasignalt
hatfir
msar ewi
ll
ingtospe
nd
signi
ficantamount sofmone yt oadvert
ise.
145. Crit
icsofmar ke t
stha tarecharact
erizedbyfirmst hatse
ll"
brand"namepr
oduc
tsar
guet
hatbr
andname
senc
our
age
consume rst
opa ymor eforbrandedpr oductsthat
a. havee l
asti
cde mandc urves
.
b.ar everydi ffer
entf rom generi
cpr oducts
.
c. areindist
ingui shablefrom genericproducts.
d.c onsume r-
advoc a
tegr oupshavef oundtobei nfe
rior
.
ANSWER: c. arei ndisti
ngui s
hablefrom genericproducts
.
146. Edwar dChambe rl

inargue dtha tbrandname s
a. hampe redmarketeffic
iency.
b.we r
ei nstrumentali
ne nhanc ingmar kete
ffic
ienc
y.
c. we r
eus ef
ulinenhanc i
ngmar kete ffici
encywhe nthegove
rnme nte
nforc
edtheuseofe
xcl
usi
vet
rade
mar
ks.
d.we r
el ikel
ytobemor es oc
iallye ffici
e ntwhe nusedinconj
unc
tionwi t
hadve
rti
sing.
ANSWER: a. hamperedmar keteffici
e ncy .

lOMoARcPSD|32204997
147. Thede bateoverthee ffici

encyofmar ket
si nwhi c
hpr oductswi t
hbr andname sar
esol
d
a.i sfr
ame dbyt her ol eofregulat
ioninadve r
tis
ing.
b.i sli
kelytober e
s olve dbyr ef
erencet
oane cdotalevi
de nce.
c. hingesonwhe t
he rc onsume rsarera
tionalinthei
rc hoices
.
d.hi ngesont heeffectivenessofadvert
isingwhi chidenti
fie
spr i
cedi ffe
renc
es.
ANSWER: c. hingesonwhe t
herconsume r
sar erat
ionalintheirchoic
e s.
148. A r
e c
e ntoutbre
akofhe pati
ti
swasl inkedtoana t
ionalfast
-f
oodr es
taurantc
hain.Thi
sisane
xampl
eofac
asei
n
which
a. brandnamei dentit
yi ncr
easestheeffe
cti
venessofmar ket
s.
b.br andnamei dentit
yc anbede tri
me nt
altotheprofit
abil
it
yofafirm.
c. adverti
singisineffe
c t
iveinsalvagi
ngpe rc
epti
onsofpr oductquali
ty.
d.adve rti
singcannotbeus edtoe s
tabl
ishbrandloyalt
y .
ANSWER: b. brandnamei dentit
yc anbede tr
imentaltotheprofit
abi
lit
yofafirm.
149. Crit
icsofva cationadve rt
isementst
ha tdepi ct"beautif
ul"humanbodiesonsun-drenc
hedbe
ache
sast
hepr
imar
y
foc
usoft heme s s
agear eli
kelytocl
aimt ha tthepur poseoftheadvert
ise
mentisto
a. provi dehelpfulinformationaboutat our is
tde st
inati
on.
b.mani pulatepe ople'
stastest
hroughps yc hologicalme s
sages.
c.i nflamec arnaldesire.
d.e nc ouragesun- bat
hinginge ner
al.
ANSWER: b. mani pulat
epe ople'
stast
esthr oughps ychol
ogicalmess
ages.
150. Ifadvert
isi
ngr educesac ons
ume r
'spricesensiti
vi t
ybe t
we enident
icalgoods
,iti
sli
kel
yto
a.i ncr
easethee last
icityofde mandf ordiffe
rent ia
tedproduc t
s.
b.e nhancec ompe ti
tion,ande ncouragemor epr oductdivers
ity
.
c.i mpedec ompe tit
ionandr educesocialwe ll
-be i
ng.
d.e ncouragethec ons umptionofallhomoge nousgoods .
ANSWER: c. impe decompe ti
tionandr educes ocialwell-
be i
ng.
151. Ifafirmi namonopol i

sti
call
yc ompe t
it
ivemar ke
tsucce
ssf
ullyusesadvert
isi
ngt
ode
cre
asee
las
tic
ityofde
mandf
or
it
spr oduct,
a.t hefirm willbeabletoincr eas
eitsmarkupove rmargi
nalcos
t.
b.t hefirm willeventuall
yha vetolowerpricetoremaincompeti
tive
.
c.itwi l
lincr
easet hewe l
l-
beingofs oci
ety.
d.itwi l
lreducea ver
agetotalcost.
ANSWER: a . t
hefirm wi l
lbeabl etoincr
easeit
smar kupovermarginalcos
t.
152. Thepri
mar yc lai
m ofde f
ende rsofadve rt
isi
ngisthatit
a.conveysinforma ti
ona boutfirm profit
abil
ity
.
b.ispsychologicalrat
hert haninforma t
ional.
c.enhancest heinformationa vai
labl
et oconsume rs
.
d.Alloftheabovear ecorre c
t.
ANSWER: c. enhanc estheinf ormat
iona vail
abletoconsume
rs.
153. Evi
dencesuggeststhat,inmar ke tswithdiffe
renti
ate
dproduc
tsbutwi
thoutal
otofadve
rti
sing,
a.consume r
sarenotc onfusedbyc onfli
cti
ngs i
gnals
.
b.inge ne
ral
,fir
msar elesspr ofit
able.
c. market
sarelesseffici
ent.
d.consume r
smakebe t
terchoi ces.
ANSWER: c
. marke t
sar elesseffic
ie nt
.

lOMoARcPSD|32204997
154. Evidences uggeststhat

, inmar ketswi t
hdiffe
rent
iat
edpr
oduc
tsandwi
thal
otofadve
rti
sing,
(i
) c onsume rsmakebe t
terchoices.
(i
i) mar ke t
sar elesseffic
ient.
(i
ii
)i nge ne r
al,fir
msar elessprofit
able.
a.( i
)only
b.( i
ii)only
c.( i
i)and( ii
i)only
d.Al loftheabovear et rue.
ANSWER: a. (
i)only
155. Inmar ketswhe r

erest
rict
ionsonadve rti
singha vebeenus edtocurt
ailcompe
tit
ion,
theU.
S.c
our
tsha
vege
ner
all
y
a.r efer
redt hematt
ersofadve rti
singr e
s t
r i
cti
onstoexecutivere
gulat
ors.
b.e nforcedindust
ry-widea gre eme nt
st or est
ric
tadverti
sing.
c. beens il
entontheeffe
c tofe xpli
c i
tadve rti
singrest
ric
tions.
d.ove rturnedlawsthatpr ohibitadver t
ising.
ANSWER: d. over
tur
nedl a
wst hatpr ohibitadve r
tis
ing.
156. A la
wt hatrestri
ctstheabi l
it
yofhot e l
s/motelst
oadve r
tiseonbi
ll
boar
dsout
sideofar
esor
tcommuni
tywoul
dli
kel
y
le
adt o
a. ade c
reaseinpr ofit
sf orallhotels/mot e
ls.
b.r educedeffic
iencyofl ocallodgingmar ket
s.
c. arequestbyc onsume rstoinc r
eas ethenumbe rofbi
llboar
ds.
d.Al loftheabovear ecor rect
.
ANSWER: b. reducede ffic
ie ncyofloc all
odgingmar ke
ts.
TYPE:M DI FFI
Us
ethef
oll
owi
ngi
nfor
mat
iont
oans
werques
tions157t
hrough160
.
Cons i
de rthepr oblemf aci
ngtwofir msi nt hefa st-
foodr estaurantmar ket
,Firm AandFi r m B.Eachc ompanyhasj us tcome
upwi thani de aforane wfast
-foodme nui te
m, whi chitwoul dsellf
or$4. Assumet hatthemar ginalc os
tfore achne w
me nui t
emi sac ons tant$2andt heonl yfixedc ostisforadve rt
isi
ng.Ea c
hc ompa nyknowst hatifitspends$12mi ll
ionon
advertisi
ng,itwi llge t2mi l
li
onc ons ume rstotr yitsne w pr oduct.Fi
rm A hasdonemar ketr e
s e
archwhi c
hs ugge st
st hati
ts
produc tdoesnotha veany" st
aying"powe rint hemar ket.Eve nthoughitc oul
dge t2mi l
lionc onsume rstobuyt hepr oduct
once,itisunlikelyt hatt heywi llcontinuetobuyt hepr oduc tinthefuture.Fir
m B'smar ketresearchs uggest
st hatits
produc tisverygood, andc onsume r
swhot r
yt hepr oduc twillconti
nuet obec onsume r
sove rthee nsuingye ar.Ont he
basisofitsmar ketr e s
e arch,Fir
m Be sti
ma testha tit
sini t
ial2mi lli
onc ust
ome rswillbuyoneuni tofthepr oduc teach
mont hint hec omi ngye ar,f
orat otalof24mi l
lionuni ts.
157. IfFi
rm Ade c i
de stoadvert
iseit
sproducti
tcanexpe
ctto
a. getrepeatsalesaboveandbe yondthei
niti
al2mil
li
oncons
ume
rs.
b.i ncre
aseitsmar ketpowe r
.
c.i ncuralossof$8mi l
li
on.
d.ha veapr ofitof$4mi l
li
on.
ANSWER: c. incural ossof$8milli
on.
158. Iffir
m Bde cide stoadve r
tisei
tsproductitca
ne xpe
ctt
o
a. ha veapr ofitof$48mi ll
ionperyear.
b.ha veapr ofitof$36mi ll
ionperyear.
c.i nc uralossof$12mi l
lionperyear.
d.e xitt
heindus try.
ANSWER: b. haveapr ofitof$36milli
onpe ryear
.

lOMoARcPSD|32204997
159. Byi
tswi l
lingnesstospendmone yonadve rti
sing,Fi
rmB
a.signalsthevalueofitsne w producttoc onsume rs
.
b.signalsthati
tisnotapr ofitmaximizer.
c.isde t
racti
ngf r
om thee ffic
iencyofmar kets
.
d.Noneoft heabovearec or rect
.
ANSWER: a . si
gnalsthevalueofi t
sne w produc ttoconsume
rs.
160. Onthebasisofat heorythatpeoplebuyapr oductbe c

aus eiti
sadve
rti
sed,thecont
entofadve
rti
seme
ntsf
orFi
rm B'
s
pr
oduct
a.shouldf ocusonqualitycompar i
sonsinordertobes uc c
ess
ful
.
b shouldde fini
tel
yincl
udec ele
brityendorsementsinor dert
obesuccess
ful.
c.iscri
tic
altot hesucce
ssofthepr oductinthemar ket
.
d.isir
relevanttothesuccessoftheadverti
sement.
ANSWER: d. i
sirrel
evanttothesuccessoftheadvert
iseme nt.
161. Iti
sawe ll
-publ i
cize dfacttha ttel
evis
ionadve rt
iseme ntsairedduringma j
ors
port
ingevent
sareverye
xpe ns
ive
.A
theoryassertingt ha tpeoplebuyapr oduc tsi
mpl ybe causeitisadvert
ise
dwouldsugges
tthati
nfor
mationonthecos
t
ofadver t
isi
ng
a.e nhanc esthee ffec
tivene s
softheadve rti
seme nt.
b.r educ e
spe ople'swi ll
ingne sst
opur chaseadve r
tisedpr oducts
.
c.i sleakedt odi screditthefirmst hats
pe nds omuc honadve rti
sing.
d.r educ e
st hee ffecti
ves tayingpowe rofapr oduc t
.
ANSWER: a. enhanc esthee ffe
c t
ive
ne s
soft headve r
tis
e ment .
162. Ins
omec ountri
es,brandnamef ast
-f
oodr est
aurantsarenotallowe dt
oope
rat
e.Suc
hre
str
ict
ionsar
eli
kel
yto
a.enhancethesocialwe ll
-bei
ngofs ocie
ty.
b.enhancethechoices etofconsume r
samongl ocalre
s t
aurants.
c.reducebarri
erstoe ntryinimpe r
fectmarkets.
d.reducethecompe tit
ivenatureoflocalfas
t-f
oodmar ket
s.
ANSWER: d. re
duc ethec ompe t
it
ivenatureoflocalfast
-f
oodmar ket
s.
TYPE:M DIFFI
163. Euniceconsume sCokeexclus

ivel
y .Shec laimstha tt
herei sac l
eartastedi ffe
renceandt hatc
ompeti
ngbr andsofcol
a
le
a veanunsavoryresi
dualtastei
nhe rmout h.Howe ver,inabl i
ndt as t
ete st
,Euniceisfoundtopr
efergeneri
cstore
-
brandcolatoCokee i
ghtoutoft entime s. Theresult
sofEuni ce
'stastete s
twoul dreinforcec
lai
msbyc r
itic
sofbrand
name sthat
a.c onsume r
sarealwayswi l
li
ngt opa ymor eforbrandname s
.
b.br andname scauseconsume rstope rc ei
vediffer
encest hatdonotr eal
lye xi
st.
c. brandname scauseconsume rstobemor esensit
ivetopr oductdi ffe
r e
nc es.
d.br andname sareaform ofsociallyeffici
entadve r
tis
ing.
ANSWER: b. brandname scausecons ume rstope rcei
vedi ffe
rencestha tdonotr eall
ye xis
t.
164. Yourc ompa nyhasr ec

entl
yr equeste
dt hatyout ra
ve ltoDhaka ,Banglades
h,toworkonne
goti
ati
onsforane
wfact
ory
tobeloc atedinoneofthepor tcit
ies.Yourtravelage ntprovidesali
stofsever
alhundr
edl
ocalhot
els
,andaShe
rat
on.
Inthisc ase,t
heSherat
onbr and-namei slike
lytobeus edasas ignalof
a. perc ei
veddiffe
rencesthatarenotl i
kelytoexistamongyourvar iousopti
ons.
b.qual it
ywhe nqualit
yc annotbee asil
yjudged.
c.i neffic
iencyi
nmar ketscharacter
izedbyr ecogni zabl
ebr andname s.
d.t hequal it
yofge ner
allodgingaccommoda ti
onsi nDhaka .
ANSWER: b. qual
itywhe nqualitycannotbee asi
lyj udged.
TYPE:M DI FFI CULTY:1SECTI ON:17. 2

lOMoARcPSD|32204997
165. Dur i
ngar e centvisi
ttoMi ami,Florida,youstayina“brandname ”hotellocatedinadeteri
orat
ingse
cti
onofthe
innerc i
ty.Youf eelt
hr e
a te
ne dbyt helocati
onandar ehe s
itantaboutl ea
vingyourhot elr
oom dur i
ngyourst
ay.Asa
resultofyoure xpe r
ience,youvow ne vertost
aywi ththatpar t
icularhotelchainagai
n.Thisexamplewouldrei
nfor
ce
theclaimt hat
a. firmsha veafinanc ialstakeinmai ntai
ningthere put
ati
onoft he i
rbr
andname s.
b.br andname sareas ignalofqual it
y.
c. adve rt
isi
ngi sawas teofmone yf orbrand-namepr oduc t
s.
d.Noneoft heabovear ec orr
ect.
ANSWER: a . fir
msha veafinanc i
alstakeinmai ntai
ningther eputationoftheirbrandname s
.
TYPE:M DI FFI
166. Onavac at
iont oCanc un,Me xi
co,youfindyour sel
fe at
inge ve r
yme alatthelocalMc Donald'srat
he rthanhavinga
hambur gerfrom oneoft hestreetvendors.Yourtraveli
ngc ompani onclaimstha tyouareirrati
onal,si
nc eyounever
eatMc Donald'shambur gerswhe nyouar ehomeandMc Donal d'
shambur ge
r scostmorethant hosepr eparedand
soldbyCanc un' sstr
eetve ndors.Ane conomi stwouldmos tlikelyexplainyourbe haviorbys ugges
t i
ngt hat
a. yourbe haviorisrati
onal ,butyourf r
iend’sbehaviorisc l
earlyi r
rati
onal.
b.youar eclearlyir
rati
onal .
c.t heMc Donal d'sbrandnameguar anteesconsi
stentquality.
d.t headve r
tisingbyMc Donal dsinCanc uni smorepe rsuas i
vet hantheadve rtis
ingbyMc Donaldsinyourhome
town.
ANSWER: c. theMc Donal d'sbrandnameguar antee
sc onsistentqual i
ty.
167. Whichoft hefol

lowingisuniquetoamonopolist
ical
lycompe t
it
ivefir
m whencompare
dtoanoli
gopoly?
a. Themonopol is
tic
all
yc ompeti
ti
vefir
m advert
ises
.
b.Themonopol is
tic
all
yc ompeti
ti
vefir
m producesaquantit
yofout putt
hatf
all
sshor
toft
hesoci
all
yoptimall
eve
l.
c. Monopol i
sti
ccompe ti
ti
onfeat
ur e
smanybuye rs.
d.Monopol i
sti
ccompe ti
ti
onfeat
ur e
smanys el
ler
s.
ANSWER: d. Monopolist
iccompeti
tionfe
atur
esmanys e
lle
rs.
TYPE:M DI FFI
168. Indollarter
ms ,t
helar
ge s
tfor
m ofadve
rti
singi
ntheUni
tedSt
ate
sis(
are
)
a. bil
lboards.
b.ne ws paperandma gazi
neads.
c.r adioads.
d.t el
evisi
onads .
ANSWER: b. newspaperandma gazi
neads.
169. Fir
m Apr oduc e
sands ell
sinamar ketthati
scharac
ter
izedbyhighlydiffe
renti
atedcons
ume rgoods.Fir
mB
producesands ell
sindust
rialproduct
s.Fi
rm Cproducesands e
llsanagricul
turalcommodity
.Whi chfir
misli
kel
yto
spendthegr e
atestport
ionofitstot
alreve
nueonadve r
tisi
ng?
a. FirmA
b.Fi rmB
c. FirmC
d.The reisnor easontobeli
evethatanyoneofthethr
e efir
mswoul dspendagr eate
rport
ionofitstot
alre
venueon
advert
isi
ngt hantheothertwofirms.
ANSWER: a. Fi
rmA
TYPE:M DI FFI
170. Thefactthatther
eisagr eatdealofadver t
isi
ngofme n’
sshavi
ngpr
oduc
tsi
ndi
cat
est
hat
a.themar ketf
orthosepr oduct
si sper
fectlycompeti
ti
ve.
b.itcostsfirmsverylit
tletoproduc et
hos eproduct
s.
c.thosepr oductsarehighlydiffer
enti
ated.
d.Al loftheabovear ecorrec
t.
ANSWER: c . thos
epr oductsarehighlydiffer
entia
ted.

lOMoARcPSD|32204997
171. Inwhichofthefol
lowingpr oductmarke t
sarewel ikel
ytoobservethelar
ges
tamountofadve
rti
sing?
a. market
sinwhic hpric
ee xcee
dsmar ginalcos
t
b.pe r
fect
lycompetit
ivemar ket
s
c. market
sinwhic hindustri
alproductsaresol
d
d.mar ket
sinwhic hther
eisve ryli
tt
lediffe
rencebe t
we e
ndiffe
rentfir
ms’produc
ts
ANSWER: a
. market
si nwhi c
hpr iceexc
eedsmar ginalcost
172. Cri
ticsofadverti
singarguethatadvert
isi
ng
a.c reat
esde s
ire
st hatot
herwisemightnotexi
st.
b.hi nderscompe ti
ti
on.
c. ofte
nf ai
lstoconveysubstant
iveinf
ormati
on.
d.Al loftheabovear ecorr
ect.
ANSWER: d. Alloftheabovear ecor
rect
.
173. Rel
ati
vetootheradve r
tis
ingexpenditure
s,thel
arge
stnumbe
rofdol
lar
siss
penton
a.tel
evisi
onandr adioc omme rc
ial
s.
b.bill
boardsandot hersigns
.
c.spaceinma gazinesandne wspapers.
d.directmail
.
ANSWER: c. spaceinma gazinesandne wspaper
s.
174. A s
tudyoft hemar ketforoptome t
ris
ts’servi
cesinthe1960sshowe dthat
a. alls t
ate
si ntheUni t
edStatesprohibit
edadve r
tis
ingbyopt ometri
sts
.
b.al mos tallprof
essionaloptometri
s t
soppose dle
galrest
ric
tionsontheirright
stoadve rti
se.
c.t hea veragepriceofeyeglass
eswoul dber educedbyther emovaloflegalres
tric
tionsonadve r
tis
ingby
opt ometrist
s.
.
ANSWER: c. theaveragepriceofeyeglasse
swoul dber e
ducedbyt heremovalofl egalrest
ric
tionsonadver
tis
ingby
optometrist
s.
TYPE:M DI FFI CULTY:2SECTI ON:17.2
175. Whi chofthefoll

owings tat
ementsiscorr
ect?Alltheore
t i
calargume nt
spointtothefactt
hatadver
tis
ingl eadsto
a. higherpri
cesandl esscompetit
ivemarke t
s.
b.hi gherpri
cesandmor ecompe t
iti
vemar kets
.
c.l owerprice
sandl esscompe t
it
ivemarke ts
.
d.Noneoft heabovear ecorr
ect;t
heoret
icalargume nt
sfailtores
olvetheque s
tionofadver
tis
ing’
seffectonpr ice
s
andcompe tit
ion.
ANSWER: d. Noneoft heabovearec orr
ect
;theoreti
calargume ntsf
ailtore
solvethequesti
onofadverti
sing’seffe
cton
pri
cesandc ompe t
iti
on.
TYPE:M DI FFI
176. Accordingtothe“ si
gnali
ngtheory”ofadve r
tis
ing,consume r
s
a. payl i
tt
leornoa tt
enti
ont owhichfir
msadve r
tis
eandwhi chfir
msdonotadve rt
ise.
b.ar eoftenmor eimpresse
dbyafir m’swi l
li
ngnesstospendmone yonadvert
isi
ngt hant heyarebythecont
entof
theadve r
tis
eme nt.
c. areoftenmor eimpresse
dbyl ow-costadvert
isementsthantheyar ebyhigh-c
ostadve rtis
eme nt
s.
d.gai nlit
tl
eornoi nformati
ona boutproductqualit
yf r
om advertisement
s.
ANSWER: b. areoftenmor ei
mpr ess
edbyafir m’swilli
ngnesstospe ndmone yonadve rti
singt hant
heyarebythe
contentoftheadvert
isement.

lOMoARcPSD|32204997
177. ABCCompanyknowst hatitproduc esandsel

lsave rygoodmous etr
ap.XYZCompa nyknowst hatitproducesand
sel
lsalous ymousetrap.Acc or
dingt othe“si
gnalingtheory”ofadve
rtis
ing,thequalitydi ffe
rencelikel
ypr oduces
theresultthat
a. bothABCandXYZha veincentivestospe
ndl argeamountsofmone yonadve r
tisi
ngt he i
rmous et r
aps.
b.ABChasani nce
ntivetos pendal argeamountofmone yonadverti
singit
smous et r
ap, butXYZdoe snot.
c. XYZhasani nc
entivetos pendal argeamountofmone yonadvert
isi
ngi t
smous etrap, butABCdoe snot.
d.ne itherABCnorXYZhasani ncenti
vetospendal argeamountofmone yonadve rti
singt heirmous etr
aps.
ANSWER: c. XYZhasani ncenti
vet ospendalargeamountofmone yonadve rti
singitsmous etrap,butABCdoe snot
.
178. Twos oftdri

nkss itsi
de -
by-sideinagroc e
rys tor
e :Asix-
packofCoc a-Cola(
abrandname )sell
sfor$3.00
,whil
eas i
x-
packofUnc leDon’ scola(notabr andname )s el
lsfor$1.
50.Evende f
endersofbrandname swoul dhavetoadmitt
hat
a. nor at
ionalconsume rwoul ds pendtwiceasmuc hforCoc a-Col
aashewoul dforUnc l
eDon’ scol
a.
b.t heside-by-s
idepr esenceofthesetwoc olasconveysnous efuli
nformati
ontoc onsumers
.
c. Coca-Col ahasnoi ncenti
vetomai ntai
nt hequal i
tyofit
spr oductjus
tbecaus
eoft heCoca-Colabrandname.
d.Noneoft heabovear ecorrec
t.
ANSWER: d. Noneoft heabovear ecorre
c t
.
179. Whichoft hefollowingstat

eme nt
sisfals
e?
a. Thetypicalmonopol is
ticall
yc ompe t
it
ivefir
mc ouldr e
duc eitsaveragetotalcos
tifi
tproduce
dmor eoutput.
b.Monopol is
tical
lycompe tit
ivefir
msadve r
tis
einor dertoincr
e as
et heelast
icit
yofthedemandc urvet
heyface.
c. Expensiveadve r
tis
ingmi ghthe l
pc onsume rsifitisasignalthatthepr oductisgood.
d.Br andname sacquir
eda tgr ea
tcostmi ghthelpc onsume rsbyassur i
ngqual it
y.
ANSWER: b. Monopol is
tic
allycompe t
it
ivefirmsadve rtis
einor dertoincreasethee l
ast
ici
tyoft
hede mandcurvethey
face
.
TYPE:M DI FFI
TRUE/
FALSE
1. Foraprofit
-maxi
mizingfir
mi namonopol
is
tic
all
ycompe
tit
ivemar
ket
,whe
npr
icei
sequalt
oave
raget
otalc
ost
,pr
ice
mustli
ea bovemargi
nalcost.
ANSWER: TTYPE:TFDI FFICULTY:2SECTION:17.
1
2. Produc
tdiffe
rent
iat
ionalwaysl
eadst
os omemeas
ureofmar
ketpowe
r.
ANSWER:TTYPE:TFDI FFICULTY:2SECTION:17.
1
3. A monopol
is
tic
all
ycompe
tit
ivemarke
tisc
harac
ter
ize
dbybar
rie
rst
oent
ry.
ANSWER:
FTYPE:TFDI FFI
CULTY:1SECTION:17
.1
4. A pr
ofit-
maximizi
ngfirminamonopoli
sti
cal
lycompe
tit
ivemar
ketal
wayspr
ice
sit
spr
oduc
tats
omema
rkupove
r
marginalcos
t.
ANSWER: TTYPE:TFDI FFICULTY:2SECTI
ON:17 .
1
5. Monopol
is
ticc
ompeti
tioni
stheonl
ymarke
tst
ruc
tur
etha
tfe
atur
es“manys
ell
ers
.”
ANSWER:
FTYPE:TFDIFFICULTY:1SECTI
ON:17.
1
6. Exce
sscapac
ityc
harac
ter
ize
sfir
msinmonopol
ist
ical
lyc
ompe
tit
ivemar
ket
s,e
veni
nsi
tua
tionsofl
ong-
run
equi
li
bri
um.
ANSWER: TTYPE:TFDIFFI
CULTY:2SECTION:17.
1
7. Whenafir
m ope
rat
esate
xce
sscapac
ity
,itmus
tbei
namonopol
is
tic
all
ycompe
tit
ivemar
ket
.
ANSWER:
FTYPE:TFDIFFI
CULTY:2SECTION:17.
1
8. Whenafir
m ope
rat
esate
ffic
ients
cal
e,i
tispr
oduc
inga
tthemi
nimum poi
ntoni
tsa
ver
age
-tot
al-
cos
tcur
ve.
ANSWER:
TTYPE:TFDIFFI
CULTY:1SECTI ON:17.
1
9. A fir
mthatwoul
de xper
ienc
ehighe
raver
aget
otalc
ostbyi
ncr
eas
ingpr
oduc
tioni
sope
rat
ingwi
the
xce
ssc
apac
ity
.
ANSWER:FTYPE:TFDIFFICULTY:2SECTION:17
.1

lOMoARcPSD|32204997
10. A pr
ofit
-maximi
zingfir
mi namonopol
is
tic
all
ycompe
tit
ivemar
ketal
waysope
rat
esont
hedownwar
d-s
lopi
ng
port
ionofit
smarginalcos
tcur
ve.
ANSWER: FTYPE:TFDI FFI
CULTY:2SECTION:17.1
11. A pr
icemar
kupovermargi
nalcos
tisi
ncons
ist
entwi
thmar
keta
ttr
ibut
esoff
reee
ntr
yandze
ropr
ofit
.
ANSWER:FTYPE:TFDIFFICULTY:2SECTION:17.
1
12. Whenafir
minamonopol
is
tic
all
ycompet
it
ivemar
kete
arnsze
roe
conomi
cpr
ofit
,it
spr
oduc
tpr
icemus
tequal
mar
ginalc
ost
.
ANSWER:FTYPE:TFDI
FFI
CULTY: 2SECTI
ON:17.1
13. Whenaprofit
-maxi
mizingfir
mi namonopol
is
tic
all
ycompe
tit
ivemar
keti
sinl
ong-
rune
qui
li
bri
um,mar
ginalc
ost
mus
tli
ebelow aver
agetot
alcost
.
1
14. A fir
mi namonopolis
tic
all
ycompeti
tivemarketi
susuall
yindi
ffe
r e
ntt
oanaddi
ti
onalc
ust
ome
rwal
kingt
hrought
he
door,si
nceas
aletothatcust
omerwillnotinc
reas
ethefir
m’sprofit
.
ANSWER: FTYPE:TFDI FFICULTY:2SECTI ON:17.
1
15. Whe
nadverti
singi
susedt
ore
layinf
ormat
ionaboutpr
ice
,eac
hfir
misa
blet
oenhanc
emar
ketpowe
r.
ANSWER:FTYPE:TFDIFFI
CULTY:2SECTION:17.
2
16. Pol
icymake
rsha
vegener
all
ycometoacce
ptt
hevie
wtha
tadve
rti
singe
nhanc
est
hee
ffic
ienc
yofmar
ket
s.
ANSWER:TTYPE:TFDIFFICULTY:2SECTI
ON:17.2
17. Cr
iti
csofadve
rti
singthatf
ocus
esonproduc
tchar
act
eri
sti
csar
guet
hati
tle
adst
ole
sse
las
ticde
mandf
orpr
oduc
ts.
ANSWER:FTYPE:TFDI FFI
CULTY:2SECTI
ON:17 .
2
18. Ec
onomist
swhoarguetha
tadvert
isi
ngenhanc
esmar
kete
ffic
ienc
ysugge
stt
hatc
ele
bri
tyadve
rti
sings
ignal
sinf
eri
or
pr
oductqual
it
y.
CULTY: 2SECTION:17.
2
19. WhenMcDonaldsope
nsast
orei
nDhaka,Ba
nglade
sh,i
thasas
trongi
nce
nti
vet
oenf
orc
epr
oduc
tqual
it
ycons
ist
ent
wi
thst
ore
sintheUnit
edSt
ate
s.
ANSWER:TTYPE:TFDIFFI
CULTY:2SECTI
ON:17.2
20. TheMikatiPhi
lippi
nesHar
dRockCafehasthee xac
tsameme nuastheHardRockCaf
einNew Yor
k.Thi
sisan
exampl
eofabr andnameenhanc
ingmarke
te ffic
iencyforU.
S.tour
ist
svi
sit
ingt
hePhil
ippi
nes
.
ANSWER: TTYPE:TFDI FFI
CULTY:2SECTI
ON:17 .
2
21. Empi
ri
cale
videnc
esugge
stst
hatadve
rti
singusual
lyl
eadst
oani
ncr
eas
eint
hepr
icef
oradve
rti
sedpr
oduc
ts.
CULTY:2SECTION:17 .
2
22. Adve
r t
isi
ngduri
ngtheSuperBowlisanexampl
eofi
nfor
mat
ionaboutqual
it
ycont
aine
dpr
imar
il
yint
hee
xis
tenc
e
andexpenseoft
headver
tis
ing.
2
23. Br
andnamesarer
arel
yus
edtoconve
yi nf
ormat
ionaboutpr
oduc
tqual
it
y.
CULTY:2SECTION:17.
2
24. The"compet
it
ion"i
nmonopol
ist
ical
lyc
ompet
iti
vemar
ket
sismos
tli
kel
yar
esul
tofha
vingmanys
ell
ersi
nthe
market.
ANSWER: TTYPE:TFDIFFI
CULTY:1SECTION:17
.1
25. Therei
sgeneraldi
sagre
ementamongeconomi stsaboutt
her
oleofadve
rti
singbutt
her
eiswi
des
pre
ada
gre
eme
nt
aboutt
heroleofbrandnamesonmarketeffic
iency
.
ANSWER: FTYPE:TFDI FFI
CULTY:2SECTION:17 .
2
26. Thegover
nme ntofItal
ywillnotal
low anyHardRockCaf
erest
aurant
stoope
ni nItal
y.Def
ender
soft
hee
ffic
ienc
yof
brand-
namemar ketswoul
dar guethatthi
shashamper
edres
taurantmar
kete
ffic
iencyinI
tal
y.
ANSWER: TTYPE:TFDI FFICULTY:2SECTI ON:17.
2

lOMoARcPSD|32204997
27. Thede
bat
eoverwhe t
heradver
tisi
ngservesavaluabl
epur
pos
eins
oci
etyi
sde
fini
ti
vel
yans
wer
edbye
conomi
sts
whost
udythetas
tesandpref
erencesofindi
vidual
s.
ANSWER:FTYPE:TFDIFFICULTY:2SECTI ON:17 .
2
28. Thec
lai
mthatadve
rti
singr
educest
heelas
tic
ityofde
mandi
sli
kel
ytobemadebyade
fende
rofadve
rti
sing.
CULTY: 2SECTI
ON:17 .2
29. I
fadve
r t
isi
ngdec
rease
stheel
ast
ici
tyofdemandfors
pec
ificbr
andname
sofhar
dli
quor
,wewoul
dexpe
ctfir
mst
obe
moreabl
etoexe
rcis
emarketpowerasare
sult
.
ANSWER:TTYPE:TFDI FFI
CULTY:2SECTION:17.2
30. Whenpoor -
qual
it
yproduc
tsar
eadver
tis
edusi
ngc
heapadve
rti
singc
ons
ume
rsl
ear
ntoi
gnor
esuc
hche
ap
adve
rti
sing.
ANSWER:TTYPE:TFDI FFI
CULTY:2SECTION:17
.2
SHORTANSWER
1. Ent r
yoffirmsi namonopol ist
ical
lycompe t
iti
vei
ndus t
ryischaract
erize
dbyt wo" ext
e r
nal"effec
ts.Li
sttheseeffect
s
andbr ie
flydescribehow consume r
sandi nc umbentfir
msareinfluencedbythe seext
ernali
tie
s .
ANSWER: Busi
ness-s
teali
ngeffe
c t
—i ncumbe ntfir
msareaffecte
dthrought helos
sofs ale
s,consume rsareaffect
edbyl ower
pr i
ce.
Produc t
-vari
etyeffec
t—incumbe ntfir
msf aceamar ketwithmores ubsti
tut
es,consume rshavemor epr oductvarie
ty
from whi c
htoc hoose.
TYPE:
SDI FFI
2. Evaluatethefoll
owi ngsta t
eme ntint hecontextofbusines
s -
ste
alingandpr oduc t-
vari
etyexternalit
ies
:"Weha vetoo
manys tude ntapar t
me nt sinthistownal ready;st
atis
ticss
how t hatvac
anc yr at
esavera
ge15pe rcentduringanygi ven
seme st
er.
"
ANSWER: bus i
ness-st
eal i
nge ffect
—i fnewe ntr
antsintothemar ketcanbepr ofit
ablethenave r
ageva cancyra t
esareli
ke l
y
toriseabove15pe rcent.
Produc t
-varie
tye ffect
—i fne we ntrantstothemar ketareabletoidenti
fyni chemar ke
tswhi char eprofit
able(i
.e
.,
offe
rc l
ubr ooms ,pools,a thl
eti
cf acil
iti
es,et
c.)the
npr oductvarietywilli
nc r
e ase
,anda vera
gevac ancyr at
esarelikel
y
toriseabove15pe rcent.
TYPE:
SDI FFICULTY:2SECTI ON:17. 1

lOMoARcPSD|32204997
3. Useagr apht
ode mons
tra
tewhyaprofit
-maxi
mi zi
ngmonopoli
sti
call
yc ompe
tit
ivefir
m mus
tope
rat
eate
xce
ss
capac
ity
.Explai
nwhyape rf
ect
lyc
ompe ti
ti
vefir
mi snots
ubj
ectt
ot hesameconstr
aint.
ANSWER:
Compe ti
ti
vefirmsdonotf acedownwar d-
slopi
ngde mand. Thegr aphs howsthefir
mc hoos
ingalevelofproduct
ion
inwhi c
ht hei
nters
e cti
onofmarginalre
venueandmar ginalc
ostoc cursatanoutputle
velwhereaver
a get
otalcos
tis
decreas
ing.Thisprofit
-maxi
mizingoutputleve
lisles
st hantheeffic
ientscal
e(minimum ofaver
agetotalcost
)and
the
reforethefir
miss aidtobeoperat
ingatexcessc
apac it
y.
TYPE:
SDI FFICULTY:2SECTI ON:17.
1
4. Inas mallcol
legetown,fourmi crobr
e weri
esha veopenedint
helasttwoyears
.Demons t
rat
etheeffec
tofthesenew
mar ketentrantsonde mandf orincumbe ntfir
ms( micr
obre
we r
ies
)thatal
readyse
rvedthismarket
.As sumethatt
he
localcommuni t ynow place
samor at
or i
um onne wl i
quorl
ice
nsesformicr
obreweri
es.How willt
hismor a
tor
ium
affectthelong-
r unprofit
abi
lityofincumbe ntfir
ms?
ANSWER:
Thearri
valofane we ntrants
houldbegr
aphic
all
ydepic
tedbyalef
twardshi
fti
nthede
mandc urve
sfacedbyal
l
inc
umbe ntfir
ms .I
ffir
msar eabl
etomakeeconomicpr
ofit
s,t
hes
ewillbeabl
etobemai
ntai
nedinthelongruni
f
newe nt
rantsarenotallowed.
TYPE:
SDI FFI
CULTY:2SECTI ON:17.
1

lOMoARcPSD|32204997
5. Inmanyc oll
egetowns,privat
einde pendentbookstore
stypic
all
yl ocat
eont hepe ri
pheryofthecoll
egecampus .
Howe ver,insomec oll
egetowns ,t
heUni versi
tyhasusedpolit
icalpowe rt
or est
rictpri
vatebookst
oresnearcampus
throughc ommuni t
yz oninglaws.Us eyourknowl edgeofmarketst opredictthepr i
ceandqualit
yofs e
rvice
diffe
r enceinthemar ketf
orc ol
legetextbooksunderthesetwodi ffer
entmar ketregimes.
ANSWER: Inmonopol ymar kets,pri
cewi l
lbehi gherandthequali
tyofs e
rvicewi l
lbelowe rthaninmonopolist
ical
ly
compe ti
ti
vemar kets.
TYPE:
6. Li s
tfivegoodst
hatares
oldinamonopoli
sti
cal
lycompeti
ti
vemarke
t.
ANSWER: books,CDs,
movies
, c
omputergame
s,andpianole
ssonsar
esomeexampl
es.
TYPE:
SDI FFICULTY:1SECTION:17.
1
7. Whydoesatypic
almonopol
ist
icall
ycompeti
ti
vefirmfac
eadownward-s
lopi
ngde
mandc
urve
?
ANSWER:
Bec
auseit
sproduc
tisdi
ffer
e ntfr
om t
hoseoffe
redbyot
herfir
ms.
TYPE:
SDI
FFI
CULTY:1SECTION:17.1
8. Wha tisme antbytheter

m“ exce
sscapaci
ty”asitr
elat
est
omonopol
ist
ical
lycompeti
ti
vefir
ms?
ANSWER:Inthel ongrun,monopol
ist
ical
lycompeti
ti
vefir
msproduc
ealevelofoutputl
owert
hanthee
ffic
ients
cal
eand
aret
heref
ores ai
dtohaveexce
sscapaci
ty.
TYPE:
SDIFFICULTY:2SECTI ON:17.1
9. Assumet her oleofacri

ticofadverti
sing.De s
c ri
bethecharact
erist
icsofadver
tis
ingthatreducetheeffe
ctivene
ssof
marketsandde cr
easet
hes ocialwell
-beingofs ocie
ty.
ANSWER: Adver t
isingmanipulate
spe ople'
st as
tesandi spsyc
hologicalrat
herthaninfor
ma ti
onal;asares
ultitc r
eat
esa
desi
rethatmi ghtnototherwiseexist
.Adve rti
singma yalsoimpe decompe t
it
ionbyc onvinc
ingconsume rsthat
productsthatareident
icalhaves i
gnific
antdiffere
nces.
TYPE:
10. As sumet heroleofade f

e nderofadvert
isi
ng.De s
cribet
hec haracte
ris
ticsofadver
tis
ingt
hatenhancethe
effe
c ti
venessofmar ketsandi ncr
easethesocialwell
-bei
ngofs ociet
y.
ANSWER: advert
isi
ngpr ovidesi nf
orma t
iontoconsume rsandthusal l
owsc onsume r
stomakemor einf
ormed(andt
hus
better)choi
ces.Adve r
tisingfoste
rsc ompeti
ti
onbymaki ngc onsume rsmor eawareofpri
cesandproduct
charac t
eri
sti
csinamar ket.
TYPE:
11. Evaluat
ethefoll
owi ngstate
me nt:"
Adve rt
isementst
hatusecel
ebri
tyendorse
me ntsar
edevoi
dofanyval
ueanddo
notenhancethee ffici
entfuncti
oningofmar ket
s."
ANSWER: Somepe oplear guetha tc
elebri
tyendorsementsareasi
gnalofqual
ity
.Ifso,t
henthe
yr e
layi
nfor
mati
onand
enhancetheeffe
ct i
vef uncti
oningofmar kets
.
TYPE:
SDI FFICULTY:2SECTI ON:17.2
12. Discusshow "brandname s"mayenhancetheeffic

ienc
yofmar ketsi
nal es
sdevelopedcountr
y .
ANSWER: Recognizablebrandnamessi
gnalqualit
ypr oducts
. I
nthetouri
standbusinesss
e r
vic
esmar ke
tthi
ssi
gnalc
anbe
cri
ti
calatthee ar
lystage
sofdevel
opme ntt
oe nsurevisi
torsha
veaqual i
tyexperi
encewhe notheri
nfor
mati
onis
unavail
ableorunr el
iabl
e.
TYPE:
SDI FFICULTY:2SECTI ON:17.
2
13. Formanyye ars

,Pepsioperateda" tastetes
t"boot hatlocalfai
rsacr
osstheUnitedSta te
s.Visi
torstotheboot hwoul
d
bee ncour agedtotakeablind" tast
ete st
"betwe enPeps ianditspri
marymar ketcompe t
it
or,Coke.Pepsithenusedthe
tastetestresult
sinadverti
singPe psi.Wha tadve rt
isi
ngt heorydoessuchanappr oachs upport?Pepsinol onge
ruses
thisasanadve rt
isi
ngstrat
egy ,butrather,reli
esonc el
ebr i
tyendorsementsandothe rformsofadve r
tis
ing.Wha t
adve rt
isingtheorydoyout hi nknow domi natesthemar ketbetweenPepsiandCoke ?Explai
n.
ANSWER: Thet ast
etestusedthe" adverti
singasi nformati
on"t heoryofadve
r t
isi
ng.Celebrityendorsementisthe
"adve r
tisingasas i
gnalofqual i
ty"the oryofadve rt
isi
ng.
TYPE:

lOMoARcPSD|32204997
14. Profess
ionalorganizations( e.
g.,Ame ric
anMe di
calAs soci
ati
onandAme ricanBa rAs sociati
on)havebeenac t
ive
advocatesforregul
a t
iont or est
r i
cttherightofprofes
s i
onalstoadvert
ise
.De scri
bewha te conomicinc
enti
vesmi ght
exis
tforincumbe ntpr ofessionalstorestric
tadvert
isi
ng.
ANSWER: Ifadverti
singincre ase
si nforma t
ionaboutpr i
cesands ervi
ces,t
henpr ovidersofpr ofessi
onalser
viceswillbe
requir
edt ocompe tewi the achot heront hebasi
sofpr iceandservi
ce.Ass uch,i
nc umbe ntprofe
ssi
onalswillbe
subjec
ttomor ec ompe titi
vepr essureint hemarketstheyservic
e,andindividualpr ofit
sarel i
kel
ytofall
.
TYPE:
15. Inmar ketswhe r

ethegove r
nme ntimposesane xci
setaxonuni tsales,i
talsohasat ende ncyt odabblewith
rest
ric
tionsonadve rt
isi
ng( i.
e.,c
igaret
tes
,har dl
iquor).Dopot ential(oractual)res
tric
tionsonadve r
tis
inginthese
marke t
sse r
vetheinterestofagove rnmentthati
sintereste
di nmaxi mi zingi t
staxrevenuef rom thesaleofthes
e
produc t
s?Explainyourans we r
.
ANSWER: Inthec as
eoft heexampl esgiven,demandisqui t
ei nel
asti
c ,sor es
tric
tionsonadve rtis
ingarenotl i
kelytohavea
lar
geimpac tont ot
alsales,butma yhaveani mpactont hedistributionofs alesac
rossbr andname s
.Ass uch,
governme ntrevenueislargelyunaffec
tedifthet
axi sonuni tsales.
TYPE:
16. Asde velopingcountri

esmakeat ransit
iont omar ket
-base
de conomies,oneofthefir
stmajorcapi
talinvest
mentsisin
"Western-quali
ty"hotel
s. Explai
nwhy" brand-name "hot
ela c
commoda t
ionsareacri
tic
alste
pi nat
tracti
ngforei
gn
inves
tme nt.
ANSWER: Brand-namehot elsar eac r
iti
calfir
s tst
ept oeconomicde vel
opme ntbecauset
heirrec
ognizedsignalofqual
ity
reducesthebar ri
ersoffacili
tat
ingf or
eignvi si
tors(andtheirmone y)
.
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Chapter 17

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lOMoARcPSD|32204997

Chapter 17 Test bank for practicing before final exam

Studocu n'est pas sponsorisé ou supporté par une université ou un lycée

Chapter 17/Monopolistic Competition  519

2. Thephe nome nonofpr oductdiffe

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520  Chapter 17/Monopolistic Competition

7. Onewa yinwhi chmonopol ist

10. Thepr ofit

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Chapter 17/Monopolistic Competition  521

12. Whichoft hegraphswoul

14. Thefirm depict

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522  Chapter 17/Monopolistic Competition

16. Whichoft hegraphss

17. Whichoft hegraphsshownwoul

18. Whichoft hegraphsdepict

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Chapter 17/Monopolistic Competition  523

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524  Chapter 17/Monopolistic Competition

24. Paneldi nthes etoffiguresshowndepic

25. Whichoft hedia

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Chapter 17/Monopolistic Competition  525

28. Asne w fir

29. Assomei ncumbentfir

30. Thefreee ntryande xitoffir

32. Whe napr ofit- maximi

33. Whe nafirm' sde

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526  Chapter 17/Monopolistic Competition

35. Whichoft hepanel

37. Whichoft hepanelsdepi

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Chapter 17/Monopolistic Competition  527

38. Whe napr ofit

41. Whe nafirm oper

42. Whenafirm operat

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528  Chapter 17/Monopolistic Competition

45. Productdi ffer

50. A monopol ist

51. Whenapr ofit

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Chapter 17/Monopolistic Competition  529

52. Thede adwe ightlossthatisas soci

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530  Chapter 17/Monopolistic Competition

60. Whe nc onsume rsareexpos edtoadditionalchoice

62. Whe nincumbe ntfir

63. Whe nt helossf rom abus iness

65. Thepr oduct-

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Chapter 17/Monopolistic Competition  531

66. Asar esultofthene w VIA hotel

68. Inamonopol ist

69. Whe nane w fir

70. Whe nafirme xit

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532  Chapter 17/Monopolistic Competition

73. Becauseamonopol ist