NEW ECON 528 MIDTERM COMBINED WITH
FINAL AND EXAM 1 Q&A TESTED AND
APPROVED NEWLY MODIFIED
Which of the following statements is true about advertising by a monopolistically competitive
firm? Select one:
a. Advertising could make the monopolistic competitor's demand more inelastic, but
advertising has no effect on a perfect competitor's demand.
b. Advertising will be more beneficial if a monopolistic competitor colludes with other
firms to advertise the products of the industry as a whole rather than an individual firm's
product.
c. Since the monopolistic competitor, like the perfect competitor, makes zero profit in
the long run, it is a waste of resources to advertise its products.
d. Monopolistically competitive firms tend to shun advertising because advertising
draws attention to the variety of differentiated products available in the industry. --
ANSWER--a. Advertising could make the monopolistic competitor's demand more inelastic,
but advertising has no effect on a perfect competitor's demand.
One of your classmates asserts that advertising, marketing research, and brand management
are redundant expenditures because a firm can obtain the same information by simply looking
at what customers are already buying. Which of the following is not a response you might
offer her?
a. Marketing research could allow a firm to identify new market opportunities and at
least, in the short run, a firm can make a profit supplying products to this market segment.
Page 1 of 132
,b. Conducting market research is a good way for firms to keep abreast of changing
consumer tastes and preferences.
c. If a firm successfully manages its brand, customers become less price sensitive as
they perceive fewer substitutes for the firm's brand.
d. Advertising and brand management allow a firm to create an entry barrier which will
insulate the firm from competition and from undertaking further product innovations. --
ANSWER--d. Advertising and brand management allow a firm to create an entry barrier
which will insulate the firm from competition and from undertaking further product
innovations.
A company's competitive strategy deals with
a. the specific actions management intends to take to strongly differentiate its product
offering from the offerings of rival companies in the industry.
b. the specific actions management plans to take to gain a competitive advantage over rivals
c. its plans for under-pricing rivals and achieving product superiority.
d. how it plans to unify its functional and operating strategies into a cohesive effort aimed at
successfully taking customers away from rivals.
e. how to compete successfully-its plans for positioning the company in the marketplace, its
specific efforts to please customers and improve its competitive strength, and the type of
competitive advantage it intends to establish. -- ANSWER--e. how to compete
successfullyits plans for positioning the company in the marketplace, its specific efforts to
please customers and improve its competitive strength, and the type of competitive
advantage it intends to establish.
A competitive strategy of striving to be the low-cost provider is particularly attractive when
Page 2 of 132
,a. there are many ways to achieve higher product quality that have value to buyers.
b. buyers are large, have significant power to bargain down prices, use the product in much
the same ways, and have common user requirements.
c. most rivals are pursuing best-cost or broad differentiation strategies.
d. buyers are not swayed by advertising and are not very brand-loyal.
e. most rivals are trying to differentiate their product offering from those of rivals. --
ANSWER--b. buyers are large, have significant power to bargain down prices, use the
product in much the same ways, and have common user requirements.
To be successful with a differentiation strategy, a company has to
a. have a state-of-the-art value chain and concentrate on providing buyers with a
technologically superior product
b. incorporate more differentiating features into its product/service offering than rivals and
also charge a price no higher than the prices charged by rivals.
c. Concentrate on differentiating its product on the basis of superior product quality or
personalized customer service.
d. outspend rivals on R&D in order to have differentiating attributes that rivals don't have.
e. study buyers" needs and behavior very carefully to learn what they consider important,
what they think has value, and what they are willing to pay for -- ANSWER--e. study
buyers" needs and behavior very carefully to learn what they consider important, what they
think has value, and what they are willing to pay for
Page 3 of 132
, Explain how it would be possible for the equilibrium price and equilibrium quantity to both
increase in the market for motorcycles if consumer preference for motorcycles increases and
the number of motorcycle manufacturers decreases. -- ANSWER--An increase in consumer
preference will shift the demand curve to the right, which increases the equilibrium price and
the equilibrium quantity.
A decrease in the number of manufacturers will shift the supply curve to the left, which will
increase the equilibrium price and decrease the equilibrium quantity.
In both cases, the equilibrium price increases. For the equilibrium quantity to increase, the
rightward shift in demand resulting from the increase in consumer preference must be more
than the leftward shift in supply which results from the decrease in manufacturers.
Discuss the correct and incorrect economic analysis in the following statement.
"If good weather in Hawaii creates a bumper crop of pineapples, the supply of pineapples will
increase. This will result in a price decrease, which will then cause the supply of pineapples
to decrease." -- ANSWER--The supply of pineapples will increase resulting in a lower
equilibrium price and a higher equilibrium quantity but the lower price will not shift the
supply curve for pineapples
Why would an organization as large as the National Football League (NFL) incur large legal
expenses to try to prevent bars and restaurants from using their trademarked term "Super
Bowl" in their advertising? -- ANSWER--The NFL has spent a lot of time and money to
make their brand successful. When you think of 'Super Bowl' you automatically think of
professional football. If they went after every bar and restaurant that used the term they
Page 4 of 132
FINAL AND EXAM 1 Q&A TESTED AND
APPROVED NEWLY MODIFIED
Which of the following statements is true about advertising by a monopolistically competitive
firm? Select one:
a. Advertising could make the monopolistic competitor's demand more inelastic, but
advertising has no effect on a perfect competitor's demand.
b. Advertising will be more beneficial if a monopolistic competitor colludes with other
firms to advertise the products of the industry as a whole rather than an individual firm's
product.
c. Since the monopolistic competitor, like the perfect competitor, makes zero profit in
the long run, it is a waste of resources to advertise its products.
d. Monopolistically competitive firms tend to shun advertising because advertising
draws attention to the variety of differentiated products available in the industry. --
ANSWER--a. Advertising could make the monopolistic competitor's demand more inelastic,
but advertising has no effect on a perfect competitor's demand.
One of your classmates asserts that advertising, marketing research, and brand management
are redundant expenditures because a firm can obtain the same information by simply looking
at what customers are already buying. Which of the following is not a response you might
offer her?
a. Marketing research could allow a firm to identify new market opportunities and at
least, in the short run, a firm can make a profit supplying products to this market segment.
Page 1 of 132
,b. Conducting market research is a good way for firms to keep abreast of changing
consumer tastes and preferences.
c. If a firm successfully manages its brand, customers become less price sensitive as
they perceive fewer substitutes for the firm's brand.
d. Advertising and brand management allow a firm to create an entry barrier which will
insulate the firm from competition and from undertaking further product innovations. --
ANSWER--d. Advertising and brand management allow a firm to create an entry barrier
which will insulate the firm from competition and from undertaking further product
innovations.
A company's competitive strategy deals with
a. the specific actions management intends to take to strongly differentiate its product
offering from the offerings of rival companies in the industry.
b. the specific actions management plans to take to gain a competitive advantage over rivals
c. its plans for under-pricing rivals and achieving product superiority.
d. how it plans to unify its functional and operating strategies into a cohesive effort aimed at
successfully taking customers away from rivals.
e. how to compete successfully-its plans for positioning the company in the marketplace, its
specific efforts to please customers and improve its competitive strength, and the type of
competitive advantage it intends to establish. -- ANSWER--e. how to compete
successfullyits plans for positioning the company in the marketplace, its specific efforts to
please customers and improve its competitive strength, and the type of competitive
advantage it intends to establish.
A competitive strategy of striving to be the low-cost provider is particularly attractive when
Page 2 of 132
,a. there are many ways to achieve higher product quality that have value to buyers.
b. buyers are large, have significant power to bargain down prices, use the product in much
the same ways, and have common user requirements.
c. most rivals are pursuing best-cost or broad differentiation strategies.
d. buyers are not swayed by advertising and are not very brand-loyal.
e. most rivals are trying to differentiate their product offering from those of rivals. --
ANSWER--b. buyers are large, have significant power to bargain down prices, use the
product in much the same ways, and have common user requirements.
To be successful with a differentiation strategy, a company has to
a. have a state-of-the-art value chain and concentrate on providing buyers with a
technologically superior product
b. incorporate more differentiating features into its product/service offering than rivals and
also charge a price no higher than the prices charged by rivals.
c. Concentrate on differentiating its product on the basis of superior product quality or
personalized customer service.
d. outspend rivals on R&D in order to have differentiating attributes that rivals don't have.
e. study buyers" needs and behavior very carefully to learn what they consider important,
what they think has value, and what they are willing to pay for -- ANSWER--e. study
buyers" needs and behavior very carefully to learn what they consider important, what they
think has value, and what they are willing to pay for
Page 3 of 132
, Explain how it would be possible for the equilibrium price and equilibrium quantity to both
increase in the market for motorcycles if consumer preference for motorcycles increases and
the number of motorcycle manufacturers decreases. -- ANSWER--An increase in consumer
preference will shift the demand curve to the right, which increases the equilibrium price and
the equilibrium quantity.
A decrease in the number of manufacturers will shift the supply curve to the left, which will
increase the equilibrium price and decrease the equilibrium quantity.
In both cases, the equilibrium price increases. For the equilibrium quantity to increase, the
rightward shift in demand resulting from the increase in consumer preference must be more
than the leftward shift in supply which results from the decrease in manufacturers.
Discuss the correct and incorrect economic analysis in the following statement.
"If good weather in Hawaii creates a bumper crop of pineapples, the supply of pineapples will
increase. This will result in a price decrease, which will then cause the supply of pineapples
to decrease." -- ANSWER--The supply of pineapples will increase resulting in a lower
equilibrium price and a higher equilibrium quantity but the lower price will not shift the
supply curve for pineapples
Why would an organization as large as the National Football League (NFL) incur large legal
expenses to try to prevent bars and restaurants from using their trademarked term "Super
Bowl" in their advertising? -- ANSWER--The NFL has spent a lot of time and money to
make their brand successful. When you think of 'Super Bowl' you automatically think of
professional football. If they went after every bar and restaurant that used the term they
Page 4 of 132
