question
maximize economic profit by...
answer
producing the quantity such that MR = MC
question
MR < MC
answer
cut output by raising price to sell less
[(P-MC)/P] < (1/|e|) --> current margin is greater than desired margin
[(P-MC)/P] < (1/|e|) --> current margin is greater than desired margin
question
MR > MC
answer
raise output by cutting price to sell more
[(P-MC)/P] > (1/|e|) --> current margin is less than desired margin
[(P-MC)/P] > (1/|e|) --> current margin is less than desired margin
question
the more price elastic your demand curve is...
answer
the lower price you should charge
question
products with close substitutes have more --- demand
answer
elastic
question
products with many complements have more --- demand
answer
inelastic
question
in the long run, demand becomes more ---
answer
elastic
question
as price increases, demand becomes --- elastic
answer
more
question
income elasticity of demand
answer
a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income
question
cross-price elasticity of demand
answer
a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
question
substitutes have --- cross-price elasticities
answer
positive
question
complements have --- cross-price elasticities
answer
negative
question
stay-even analysis
answer
how many sales can we lose before a price increase becomes profitable?
question
current margin < desired margin, is raising the price profitable?
answer
yes
question
To conduct an experiment, a movie theater increased movie ticket prices from $9 to $10 and measured the change in ticket sales. The theater then gathered data over the following month to determine whether the price increase was profitable. Assume total costs to the theater are the same, whether the price of a ticket is $9 or $10.
In order for the ticket price to have been profitable over the month, the elasticity of demand for movie tickets must be --- than 1 in absolute value.
In order for the ticket price to have been profitable over the month, the elasticity of demand for movie tickets must be --- than 1 in absolute value.
answer
less; when demand is inelastic, an increase in price will increase revenue because the percentage decrease in quantity will be smaller than the percentage increase in price.
question
Demand curves become --- elastic in the long run. This means that the ticket price increase will likely be --- profitable in the long run.
answer
more, less
question
Why might a bar offer free peanuts to its customers?
answer
Peanuts and beer are complements, so offering free peanuts should increase the demand for beer.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
