Question 1

Scenario 16-9
Dean goes to the grocery store to buy chips and soda for a party. He purchases brand name products even though generic versions are available at lower prices. His friend John says he was irrational to spend more for a nearly identical product. His friend Martina agreed with Dean's decision to spend more for the brand name products.
-Refer to Scenario 16-9. If Dean bought the brand name because of advertising he saw for the product, a defender of advertising would say

Accepted Answer

The answer of Scenario 16-9
Dean goes to the grocery store...

Question 2

Some firms have an incentive to advertise because they sell a
A)homogeneous product and charge a price equal to marginal cost.
B)homogeneous product and charge a price above marginal cost.
C)differentiated product and charge a price equal to marginal cost.
D)differentiated product and charge a price above marginal cost.

Accepted Answer

Firms with differentiated products have the ability to charge a price above marginal cost because they offer unique features or benefits that consumers are willing to pay more for. Advertising can help communicate these features and differentiate the product from competitors, making it more likely that consumers will be willing to pay the higher price. Therefore, firms with differentiated products and prices above marginal cost have a stronger incentive to advertise than those with homogeneous products or prices at marginal cost.

Question 3

Firms that sell highly differentiated consumer goods, such as soft drinks, breakfast cereals, and dog food, typically spend what percent of their revenues on advertising?
A)0-1
B)2-4
C)10-20
D)over 50

Accepted Answer

Firms that sell highly differentiated consumer goods typically spend 10-20% of their revenues on advertising. This is because they need to constantly remind consumers about their brand and unique features, and persuade them to choose their product over competitors.

Question 4

Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell
A)industrial products.
B)homogeneous products.
C)consumer goods for which there are no close substitutes.
D)highly-differentiated consumer goods.

Accepted Answer

Firms that sell highly-differentiated consumer goods tend to spend the greatest percentage of their revenue on advertising. This is because these firms need to differentiate themselves from their competitors in order to persuade consumers to choose their product over others. Advertising is a key tool for creating and communicating these points of differentiation to consumers.

Question 5

Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell
A)highly-differentiated consumer goods.
B)goods produced by natural monopolies.
C)agricultural products.
D)products with a limited shelf life such as milk and lettuce.

Accepted Answer

Firms selling highly-differentiated consumer goods require greater advertising expenditures in order to differentiate their products from competitors and create brand awareness. Agricultural products, goods produced by natural monopolies, and products with limited shelf life may not require as much advertising as consumers may perceive them as commodities or necessities.

Question 6

In which of the following product markets are we likely to observe the largest amount of advertising?
A)markets with highly differentiated products
B)perfectly competitive markets
C)markets in which industrial products are sold
D)markets in which there is very little difference between different firms' products

Accepted Answer

In markets with highly differentiated products, firms try to distinguish their product from others in order to capture market share. Advertising is one way to do this, so we are likely to observe a greater amount of advertising in these markets. In perfectly competitive markets, firms are price takers and advertising would not be as useful. Industrial products may also not require as much advertising as their customers may be other businesses that are already aware of their existence. In markets with very little difference between different firms' products, advertising may not be as effective as consumers may not be able to distinguish between different products.

Question 7

Firm A produces and sells in a market that is characterized by highly differentiated consumer goods. Firm B produces and sells industrial products. Firm C produces and sells an agricultural commodity. Which firm is likely to spend the greatest portion of its total revenue on advertising?
A)firm A
B)firm B
C)firm C
D)There is no reason to believe that any one of the three firms would spend a greater portion of its total revenue on advertising than the other two firms.

Accepted Answer

Firm A is in a market characterized by highly differentiated consumer goods, where advertising can be crucial in setting its product apart from its competitors. Therefore, it is likely that Firm A will spend the greatest portion of its total revenue on advertising.

Question 8

Which of the following correctly lists the products in order from most advertised to least advertised?
A)soft drinks, breakfast cereals, dog food
B)corn, dog food, communication satellites
C)dog food, communication satellites, corn
D)wheat, corn, crude oil

Accepted Answer

The answer of Which of the following correctly lists the...

Question 9

The relationship between advertising and product differentiation is
A)positive; the more differentiated the product, the more a firm is likely to spend on advertising.
B)negative; the more differentiated the product, the less a firm is likely to spend on advertising.
C)zero; there is no relationship between product differentiation and advertising.
D)irrelevant; firms with differentiated products do not need to advertise.

Accepted Answer

A positive relationship between advertising and product differentiation means that as a product becomes more differentiated, a firm is likely to spend more on advertising to showcase the unique features and benefits of the product. This can make the product stand out from competitors and create brand loyalty among consumers. Therefore, option A is the best choice.

Question 10

Compared to other firms, firms that sell highly differentiated products likely incur significant costs associated with
A)advertising.
B)the product-variety externality.
C)intermediate materials.
D)taxes and regulation.

Accepted Answer

Firms that sell highly differentiated products often incur significant costs associated with advertising in order to differentiate their product from competitors. This is because consumers have a wide range of choices and need to be convinced that the firm's product is better or unique in some way. In contrast, the other options listed (B, C, and D) are not necessarily specific to firms that sell highly differentiated products and may apply to firms in general.

Question 11

For the economy as a whole, spending on advertising comprises about what percent of total firm revenue?
A)0.5
B)2
C)10
D)20

Accepted Answer

The answer of For the economy as a whole, spending...

Question 12

Which of the following is not an argument made by critics of advertising?
A)Advertising manipulates people's tastes.
B)Advertising impedes competition.
C)Advertising promotes economies of scale.
D)Advertising increases the perception of product differentiation.

Accepted Answer

Critics of advertising argue that advertising manipulates people's tastes, impedes competition, and increases the perception of product differentiation. However, they do not argue that advertising promotes economies of scale. In fact, some critics argue that advertising can lead to inefficiencies and waste in the economy by promoting brand loyalty and reducing price sensitivity.

Question 13

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures results in production of the welfare-maximizing level of output?

Accepted Answer

The answer of Considering perfect competition, monopolistic competition, and monopoly,...

Question 14

Scenario 16-9
Dean goes to the grocery store to buy chips and soda for a party. He purchases brand name products even though generic versions are available at lower prices. His friend John says he was irrational to spend more for a nearly identical product. His friend Martina agreed with Dean's decision to spend more for the brand name products.
-Refer to Scenario 16-9. Martina offers two reasons for agreeing with Dean's decision. What are they?

Accepted Answer

The answer of Scenario 16-9
Dean goes to the grocery store...

Question 15

Scenario 16-9
Dean goes to the grocery store to buy chips and soda for a party. He purchases brand name products even though generic versions are available at lower prices. His friend John says he was irrational to spend more for a nearly identical product. His friend Martina agreed with Dean's decision to spend more for the brand name products.
-Refer to Scenario 16-9. If advertising were banned in these markets, what would likely happen to the prices of chips and soda?

Accepted Answer

The answer of Scenario 16-9
Dean goes to the grocery store...

Question 16

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures features entry in the long run?

Accepted Answer

The answer of Considering perfect competition, monopolistic competition, and monopoly,...

Question 17

If we observe a great deal more advertising for Mucinex, an over-the-counter drug, than for a Grainger drill press, we can infer that
A)more money is spent on Mucinex than on Grainger drill presses.
B)the market for Mucinex is more highly differentiated than the market for Grainger drill presses.
C)Grainger has lower costs of production than Mucinex.
D)Mucinex operates in an oligopoly, while Grainger operates in a monopolistically competitive market.

Accepted Answer

The answer of If we observe a great deal more...

Question 18

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures can have positive profits in the short run?

Accepted Answer

The answer of Considering perfect competition, monopolistic competition, and monopoly,...

Question 19

If we observe a great deal of advertising of men's shaving products, we can infer that
A)the market for those products is perfectly competitive.
B)it costs firms very little to produce those products.
C)those products are highly differentiated.
D)firms are irrational in their decisions to advertise.

Accepted Answer

The advertising of men's shaving products suggests that firms in this market believe that their products are highly differentiated and that they can stand out from their competitors through advertising. If the market was perfectly competitive, there would be little incentive for firms to spend money on advertising. Additionally, if it cost firms very little to produce these products, they could just lower the price to attract customers instead of spending money on advertising. The fact that firms are investing in advertising suggests that they do not believe that they are selling a perfect substitute for other products in the market. The statement about firms being irrational is also incorrect, as advertising can be a rational way for firms to differentiate their products and increase their market share.

Question 20

Advertising
A)provides information about products, including prices and seller locations.
B)has been proven to increase competition and reduce prices compared to markets without advertising.
C)signals quality to consumers, because advertising is expensive.
D)All of the above are correct.

Accepted Answer

All of the above are correct. Advertising serves various purposes, such as informing consumers about the product, price, and where to purchase it. It also plays a crucial role in promoting competition, leading to reduced prices. Moreover, the cost of advertising implies that only established businesses or products can afford it, which signals quality to consumers.

Quiz 16: Monopolistic Competition

Some firms have an incentive to advertise because they sell a

Firms that sell highly differentiated consumer goods, such as soft drinks, breakfast cereals, and dog food, typically spend what percent of their revenues on advertising?

Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell

Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell

In which of the following product markets are we likely to observe the largest amount of advertising?

Firm A produces and sells in a market that is characterized by highly differentiated consumer goods. Firm B produces and sells industrial products. Firm C produces and sells an agricultural commodity. Which firm is likely to spend the greatest portion of its total revenue on advertising?

Which of the following correctly lists the products in order from most advertised to least advertised?

The relationship between advertising and product differentiation is

Compared to other firms, firms that sell highly differentiated products likely incur significant costs associated with

For the economy as a whole, spending on advertising comprises about what percent of total firm revenue?

Which of the following is not an argument made by critics of advertising?

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures results in production of the welfare-maximizing level of output?

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures features entry in the long run?

If we observe a great deal more advertising for Mucinex, an over-the-counter drug, than for a Grainger drill press, we can infer that

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures can have positive profits in the short run?

If we observe a great deal of advertising of men's shaving products, we can infer that

Advertising