Question

Monopolistically-competitive firms have an incentive to offer products and services that

		are easily substituted for those offered by other firms.
		are indistinguishable from those offered by other firms.
		have features that are easily replicable by other firms should they prove popular.
		have unique features that make them difficult to substitute.

If producers strongly object to a ban on their advertising, it is a good clue that

		the advertising in question is primarily informational in nature.
		the advertising was assisting consumers in making more informed decisions, such as by aiding price discovery.
		producers are concerned about the welfare of the advertising agencies they work with.
		they believe the advertising in question persuades customers that products are more different than they really are.

A financial services company may hire a famous professional athlete as a spokesperson because

		famous professional athletes are wealthier than the general public, and hence more informed about financial services.
		doing so can act as a credible signal to consumers that the company’s products are of high quality since the firm is able/willing to spend money hiring a famous professional athlete in the first place.
		famous professional athletes tend to have a lot of friends who work in financial services.
		it can signal to customers that the company’s products are easy to understand, since famous professional athletes are usually pretty dumb.

Spending a lot on advertising

		can be a credible signal to consumers that a product is actually of low quality.
		can be a credible signal to producers that they should to introduce high-quality substitutes.
		is something every producer has an incentive to do.
		can be a credible signal to consumers that a product is of high quality.

Answer 1

Q. Monopolistically-competitive firms have an incentive to offer products and services that

have unique features that make them difficult to substitute.

Explanation: Monopolistically-competitive firms produce differentiated products because of which they face downward sloping demand curve.

Q. If producers strongly object to a ban on their advertising, it is a good clue that

they believe the advertising in question persuades customers that products are more different than they really are.

Explanation: Advertising is a common feature of monopolistically competitive firms.

Q. A financial services company may hire a famous professional athlete as a spokesperson because

		doing so can act as a credible signal to consumers that the company’s products are of high quality since the firm is able/willing to spend money hiring a famous professional athlete in the first place.

Explanation: The ability to hire the athlete will serve as a signal of the company's profitability.

Q. Spending a lot on advertising

can be a credible signal to consumers that a product is of high quality.

Explanation: Advertising signals to customers that the product is of good quality.