0.82.
The demand for answering machines is Q = 1,000 – 150 P + 25 I. Assume that per capita disposable income I is $200. When the price of answering machines is P = $10, the price elasticity of demand is:
–0.33
When the price of sugar was "low", consumers in the U.S. spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures increased to $5 billion annually. This data indicates that:
The demand for sugar is inelastic.
"Colombia, Brazil Advance Proposal to Withhold 10 Percent of Export Output" ( Wall Street Journal, September 23, 1991, p. B6). A Colombian delegate to the International Coffee Organization said that if all its members withheld 10 percent of export output, the international price would rise 20 percent. This statement implies the price elasticity of demand for coffee is approximately:
-0.50
A manufacturer of infant clothes has found that the demand for its product is given by Q = 100 P –1.25 A 0.5, where P is price and A is advertising expenditures. The price elasticity of demand for these infant clothes is:
–1.25
The formula for the income elasticity of demand can be written as:
decrease.
The initial price for an item is $5.00, and the quantity demanded is 400 units. When the price is raised to $5.25, the quantity demanded falls to 350 units. The absolute value of the point elasticity of demand is _____.
2.5
Suppose demand is given by Q x d = 50 - 4P x + 6P y + A x, where P x = $4, P y = $2, and A x = $50. What is the quantity demanded of good x?
96.
A firm's demand curve is usually:
more elastic than the market demand curve
The cross-price elasticity of demand for textbooks and copies of old exams is -3.5. If the price of copies of old exams increase by 10 percent, the quantity demanded of textbooks will
fall by 35 percent.
When a firm practices price discrimination in two market segments, the firm:
must be able to identify market segments that have different price elasticities.
Suppose a firm’s profit is given by the equation π = -200 + 80Q - .2Q 2. Which of the following is true?
The firm’s profit-maximizing output is Q = 200.
The demand for fax machines in thousands of units has been estimated to be Q = 1,000 – 1.5 P + 5 L, where P is the price of the machines and L is the average cost of a 10-minute midday call from Los Angeles to New York. At a fax machine price of $400 and a phone call cost of $10, the price elasticity of demand for fax machines is:
–1.33
The demand for a product is more elastic the:
longer the time period covered
If quantity demanded for sneakers falls by 10% when price increases 25% we know that the absolute value of the own-price elasticity of sneakers is:
0.4.
If the income elasticity for lobster is .6, a 25% increase in income will lead to a
15% increase in demand for lobster.
If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the cross price-elasticity of apple sauce and pork chops at a pork chop price of $6?
-0.86.
For a parking garage of fixed capacity, the owner sets different parking rates for cars that are parked for less than 24 hours (short-term) and for those that are parked for more than 24 hours (long-term). To maximize revenue, the operator should set prices and target the number of places for each segment such that:
the marginal revenues from the segments are equal.
The cross price elasticity of demand between goods X and Y is -3.5. If the price of X decreases by 7%, the quantity demanded of Y will:
increase by 24.5%.
The demand for good X is estimated to be Q x d = 10, 000 - 4P X + 5P Y + 2M + A X, where P X is the price of X, P Y is the price of good Y, M is income and A X is the amount of advertising on X. Suppose the present price of good X is $50, P Y = $100, M = $25,000, and A X = 1,000 units. Based on this information, we know that the demand for good X is
inelastic.
The own-price elasticity of demand for apples is -1.5. If the price of apples falls by 6%, what will happen to the quantity of apples demanded?
It will increase 9%.
Since most consumers spend very little on salt, a small increase in the price of salt will
not reduce quantity demanded by very much.
The demand for good X is estimated to be Q x d = 10, 000 - 4P X + 5P Y + 2M + A X, where P X is the price of X, P Y is the price of good Y, M is income and A X is the amount of advertising on X. Suppose the present price of good X is $50, P Y = $100, M = $25,000, and A X = 1,000 units. Based on this information, the cross price elasticity between goods X and Y is
0.008.
If the price of a good or service increases, what happens to the firm’s demand curve?
There is an upward movement along the demand curve.
The demand for textbooks is Q = 200 – P + 25 U – 50 P beer. Assume that the unemployment rate U is 8 and the price of beer P beer is $2. When the average price of a textbook is P = $100, the price elasticity of demand is:
-0.5
If the marginal cost of seating a theatergoer is $5 and the elasticity of demand is –4, the profit-maximizing price is:
$6.67
El Niño wind patterns affected the weather across the United States during the winter of 1997–98. Suppose the demand for home heating oil in Connecticut is given by Q = 20 – 2 Phho + 0.5 Png – TEMP, where Q is the quantity of home heating oil demanded, Phho is the price of home heating oil per unit, Png is the price of natural gas per unit, and TEMP is the absolute difference between the average winter temperature over the past 10 years and the current average winter temperature. If the current price of home heating oil is $1.20, the current price of natural gas is $2.00, and the average winter temperature this year is 40 degrees compared to 28 degrees over the past 10 years, the price elasticity of demand for home heating oil is:
–0.36
If the marginal cost of making a photocopy is 3 cents and the elasticity of demand is –2, the profit-maximizing price is:
6 cents
El Niño wind patterns affected the weather across the United States during the winter of 1997–98. Suppose the demand for home heating oil in Connecticut is given by Q = 20 – 2 Phho + 0.5 Png – TEMP, where Q is the quantity of home heating oil demanded, Phho is the price of home heating oil per unit, Png is the price of natural gas per unit, and TEMP is the absolute difference between the average winter temperature over the past 10 years and the current average winter temperature. If the current price of home heating oil is $1.20, the current price of natural gas is $2.00, and the average winter temperature this year is 40 degrees compared to 28 degrees over the past 10 years, the quantity of home heating oil demanded is:
6.6 gallons
The following table shows the total revenue and total cost (in dollars) from different sales volumes of the good.
Table 2-1
Table 2-1
Refer to Table 2-1. What is the marginal profit of the firm from the sale of the 3rd unit of the good?
$6
Which of the following correctly defines second-degree price discrimination?
The seller offers different prices and customers choose the one that best suits them.
Which of the following is true of full-cost pricing?
Since fixed costs do not affect optimal price and quantity, full-cost pricing is error-prone.
A manufacturer of infant clothes has found that the demand for its product is given by Q = 100 P –1.25 A 0.5, where P is price and A is advertising expenditures. If marginal cost is $5, the profit-maximizing price is:
$25.00
The demand for space heaters is Q = 250 – P + 2COOL, where COOL is the absolute value of the difference between the average overnight low temperature and 40°F. Assume that the average overnight low is 0°F. When the price of space heaters is P = $30, the price elasticity of demand is:
–0.1
Assume that the price and income elasticities of demand for luxury cars are E P = -0.52 and E Y = 3.2 respectively. In the coming year, car prices are expected to rise by 2 percent and income by 8 percent. Based on this information, sales of cars are expected to _____.
increase by 24.56%
The following table shows the total revenue (in dollars) and total cost (in dollars) from the production and sale of different units of a product.
Table 2-1
Table 2-1
Refer to Table 2-1. What is the profit-maximizing level of output for the firm?
5 units
The income elasticity of demand is defined as the:
percentage change in the quantity demanded divided by the percentage change in per capita income
A market demand curve is likely to shift to the right when:
population increases
A price elasticity of zero corresponds to a demand curve that is:
Vertical
If the own price elasticity of demand is infinite in absolute value, then
demand is perfectly elastic.
The demand function in the above table is Q X d = 100 - 2P X. Based on this information, when Q X = 80, the price, P X, (point A) is
$10.
Since most consumers spend very little on salt, a small increase in the price of salt will
not reduce quantity demanded by very much.
The demand for cough medicine is Q = 10 – 2 P. At a price of $2.50, the price elasticity of demand is:
–1.0
The marginal cost of producing a paperback is half the marginal cost of producing a hardback version sold to consumers at four times the paperback price. If the price elasticity of demand for paperbacks is –4, then the price elasticity of demand for hardcover books is:
–1.6
The price elasticity of market demand primarily depends on the:
availability of substitutes
The price elasticity of demand is -2.0 for a certain firm's product. If the firm raises price, the firm manager can expect total revenue to
decrease.
Suppose the equilibrium price in the market is $10 and the price elasticity of demand for the linear demand function at the market equilibrium is -1.25. Then we know that
marginal revenue is $2.
If the demand for a good is price-elastic, a cut in price
will:
lead to an increase in quantity demanded and an increase in
the firm’s revenue.
The demand for good X is estimated to be Q x d =
10, 000 - 4P X + 5P Y + 2M + A X, where
P X is the price of X, P Y is the
price of good Y, M is income and A X is the amount of
advertising on X. Suppose the present price of good X is $50, P Y =
$100, M = $25,000, and A X = 1,000 units. Based on this
information, goods X and Y are
substitutes.
If price is $25 when the price elasticity of demand is –0.5,
then marginal revenue must be:
–$25
When a demand curve is linear,
demand is elastic at high prices.
Assume that the price elasticity of demand is -0.75 for a
certain firm's product. If the firm lowers price, the firm's managers can
expect total revenue to
Decrease
If the demand function for a particular good is Q = 20 - 8P,
then the price elasticity of demand (in absolute value) at a price of $1 is
2/3.
Given the total cost equation for a firm, the marginal cost
equation can be derived by:
taking the first derivative of the cost function with
respect to quantity.
The quantity consumed of a good is relatively unresponsive
to changes in price whenever demand is:
inelastic.
Suppose that at the equilibrium price and quantity the marginal
revenue is -$15 and the price elasticity of demand for a linear demand function
is -0.75. Then we know that the equilibrium price is
$45.
The constant price elasticity of demand for cigarettes has
been estimated to be –0.5. To reduce smoking by 50 percent, approximately how
much tax needs to be added to a $1 pack?
$1.00
A good whose demand curve shifts to the left as income
increases is a(n):
inferior good
Given that digital music players are used to play music
downloaded from the Internet, a fall in the price of digital music players will
lead to:
an increase in the demand for downloaded songs.
In Russia, as per capita income rises from $1,980 to $2,020,
everything else remaining constant, annual per capita consumption of vodka
falls from 525 to 475 liters; this implies an income elasticity of demand for
vodka of:
–5.0
If a firm’s profit is given by π = -150 + 360Q - 36Q 2,
then its optimal output is:
5 units.
A product’s point price elasticity has been estimated at
-1.5. At the initial price of $20, the quantity demanded was 10 units. If the
firm cuts the price to $17.50, quantity demanded and sold is expected to
increase by _____.
18.75%
A graphical representation of the demand function is called
a:
demand curve
A profit-maximizing firm’s price can be written in terms of
marginal cost and price elasticity of demand as:
P = MC/(1 + 1/h)
If the income elasticity of demand for a good is greater
than one, it implies that:
sales of the good are highly sensitive to changes in
consumers’ income.
When the price of sugar was "low", consumers in
the United States spent a total of $3 billion annually on its consumption. When
the price doubled, consumer expenditures actually increased to
$4 billion annually. This indicates that
none of the statements associated with this question are
correct.
If a firm’s demand function is of the form P = a - bQ, what
is its marginal revenue equation?
MR = a - 2bQ
The demand for a product is given by Q = 600 - 30P. At P =
$15, the firm sells:
150 units.
Suppose the own-price elasticity of demand for good X is
-0.5, and that the price of good X increases by 10%. We would expect the
quantity demanded of good X to
decrease by 5%.
The demand for food (a broad group) is more
inelastic than the demand for beef (specific commodity).
If the cross-price elasticity between ketchup and hamburgers
is -2.5, a 2% increase in the price of ketchup will lead to a
5% 5% drop in quantity demanded of hamburgers.
If a price increase from $5 to $7 causes quantity demanded
to fall from 150 to 100, what is the absolute value of the own-price elasticity
at a price of $7?
1.75.
A profit-maximizing firm sets its price:
where demand is elastic
Suppose the own-price elasticity of demand for good X is
-0.25, and that the quantity of good X increases by 5%. What would you expect
to happen to the total expenditures on good X?
decrease.
Demand is more inelastic in the short-term because
consumers:
have no time to find available substitutes.
Assume that Burger King, a fast food chain, enters into a
franchise agreement. The royalty paid to Burger King by the franchisee is
calculated as a percentage of the franchisee’s revenue. Given that the
franchisee faces a downward-sloping demand curve, which of the following is
likely to be true?
The franchisee’s revenue-maximizing output will be greater
than its profit-maximizing output.
As we move down a linear demand curve, demand becomes:
less elastic
The demand for space heaters is Q = 250
– P + 2COOL, where COOL is the absolute value of the
difference between the average overnight low temperature and 40°F. Assume that
the average overnight low this month is 40°F. When the price of space heaters
is P = $50, the price elasticity of demand is:
–0.25
The demand for cable television hookups is Q =
100 – 10 P 1/2 + 2 I –1,
where P is price and I is per capita income.
Cable TV is a(n):
inferior good
The elasticity that measures the responsiveness of consumer
demand to changes in income is the:
income elasticity.
We would expect the own price elasticity of demand for food
to be:
less elastic than the demand for cereal.
Each week Bill buys exactly 7 bottles of cola regardless of
its price. Bill's own price elasticity of demand for cola in absolute
value is:
zero.
You are the manager of a popular hat company. You know that
the advertising elasticity of demand for your product is 0.25. How much will
you have to increase advertising in order to increase demand by 5%?
20%.
Demand tends to be
more inelastic in the short-term than in the long-term.
Suppose Q x d = 10,000
- 2 P x + 3 P y - 4.5M, where P x =
$100, P y = $50, and M = $2,000. What is the own-price
elasticity of demand?
-0.21.
If the income elasticity for lobster is 0.4, a 40% increase
in income will lead to a:
16% increase in demand for lobster.
The demand for good X is estimated to be Q x d =
10,000 - 4P X + 5P Y + 2M + A X where
P X is the price of X, P Y is the
price of good Y, M is income and A X is the amount of
advertising on X. Suppose the present price of good X is $50, P Y =
$100, M = $25,000, and A X = 1,000 units. What is the
quantity demanded of good X?
61,300.
The demand for answering machines is Q =
1,000 – 150 P + 25 I. Assume that per capita
disposable income I is $200. When the price of answering
machines is P = $10, the income elasticity of demand is:
1.11
If the own price elasticity of demand is infinite in
absolute value, then
the demand curve is horizontal.
Makers of disposable diapers must advertise 5 percent more
to offset completely the 2 percent decline in sales due to heightened
environmental concern. The advertising elasticity of demand is:
0.4
If quantity demanded for sneakers falls by 6% when price
increases 20% we know that the absolute value of the own-price elasticity of
sneakers is
0.3
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