17.3 Product Development and Marketing
1) For a firm in monopolistic competition, innovation and product development are
A) senseless because economic profit is always zero in the long run.
B) necessary in order to have a chance of making at least a short-run economic profit.
C) inconsequential because each firm produces a different product.
D) necessary to allow new firms to enter.
E) uncommon because other firms already produce similar products.
2) To maintain their economic profits, firms in monopolistic competition must continually engage in
A) product development and marketing.
B) lowering their product’s price.
C) raising their product’s price.
D) realizing short-run losses.
E) making the demand for their product more elastic.
3) The shampoo industry is constantly coming out with new products. The reason is that when a firm introduces a new shampoo into the market, the demand for the shampoo becomes ________ temporarily and economic profit ________.
A) more elastic; decreases
B) less elastic; increases
C) more elastic; increases
D) less elastic; decreases
E) unit elastic; increases
4) A firm is spending the profit-maximizing amount on product development when
A) people perceive the firm’s product to be better than those of its competitors.
B) the marginal cost of product development is equal to the marginal revenue from product development.
C) the price of the good is higher than its marginal cost.
D) the advertising costs are covered.
E) the firm’s total revenue exceeds its total costs.
5) Firms decide how much to spend on product development and marketing by
A) spending the same amount as they did in previous years.
B) spending the historical average of 1/4 of total production cost.
C) determining what it will take to eliminate excess capacity.
D) balancing the cost and the benefit of product development and marketing.
E) ensuring that the marginal cost of product development and marketing is less than or equal to the marginal cost of producing the good or service.
6) For a firm in monopolistic competition to undertake product development, the marginal cost of the development must be ________ the marginal benefit of the development to consumers.
A) greater than
B) less than
C) not comparable to
D) equal to or less than
E) None of the above because a monopolistically competitive firm undertakes product development if the marginal cost of the development is less than or equal to the marginal revenue to the firm from the development.
7) Which of the following statements about product development in monopolistic competition is correct?
i.Firms in monopolistic competition undertake too much product development for efficiency.
ii.Firms in monopolistic competition undertake too little product development for efficiency.
iii.Product development might allow the firm to make a temporary economic profit.
A) i only
B) ii only
C) ii and iii
D) i and iii
E) iii only
8) A firm in monopolistic competition
A) has no control over the price of the product it is selling.
B) might be selling a brand name product.
C) does not advertise nor market its product.
D) Both answers A and B are correct.
E) Answers A, B, and C are correct.
9) Firms attempt to create a consumer perception of product differentiation through
i.packaging.
ii.marketing.
iii.advertising.
A) i only
B) ii only
C) ii and iii
D) i and iii
E) i, ii, and iii
10) Advertising is a ________ cost that is incurred by ________.
A) variable; monopolies
B) variable; perfectly competitive firms
C) fixed; perfectly competitive firms
D) fixed; monopolistically competitive firms
E) marginal; monopolistically competitive firms
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