question
Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to
answer
Lower his price to increase revenue.
question
Ceteris paribus, if income increases and as a result, the demand for good X increases and the demand for good Y falls
answer
Good X is a normal good and good Y is an inferior good.
question
If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be
answer
0.5.
question
A grocery store put salt on sale but found that total revenues fell. This can be explained by which of the following?
answer
The demand for salt is inelastic.
question
The total revenue effect of a movement along a demand curve can best be predicted using the
answer
Price elasticity of demand
question
Ceteris paribus, the longer the time period, the
answer
More elastic the demand for the good.
question
Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month. The cross-price elasticity of demand is closest to
answer
6.3. (Because a 10.5 percent decrease in computer prices caused a 66.7 percent decrease in the demand for typewriters, the cross-price elasticity of demand is equal to 6.3.)
question
Suppose a university raises its tuition by 6 percent and as a result the enrollment of students decreases by 3 percent. The absolute value of the price elasticity of demand is
answer
0.5.
question
Which of the following causes demand to be more elastic with respect to price?
answer
A high ratio of price to income.
question
Item 10
Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to
Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to
answer
1.29. The price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. Therefore the price elasticity of demand is equal to ((4-3)/((4+3)/2))/((25,000-20,000)/((25,000+20,000)/2)) or 1.29.
question
A good is normal if the sign on the income elasticity formula is
answer
Positive, The income elasticity formula is the percentage change in quantity demanded for good X, divided by the percentage change in income. For normal goods, as income rises (+), the quantity demanded for good X will rise (+). The sign on the formula then will be positive for normal goods.
question
If demand is price-elastic, then
answer
The elasticity number E is greater than 1, Quantity demanded will be greater than the percentage change in price, so the elasticity number E will be greater than 1 if demand is elastic.
question
Higher prices will increase total revenue if
answer
Demand is inelastic.
question
The basic formula for price elasticity is
answer
The percentage change in quantity demanded divided by the percentage change in price.
question
When the prices of postage stamps rise, the demand for Internet service increases, ceteris paribus. Postage stamps and Internet service are therefore
answer
Substitutes.
question
The formula for cross-price elasticity is
answer
The percentage change in the quantity demanded for one good divided by the percentage change in the price of another good.
question
Assume that store-brand cereal is an inferior good. If income rises, then the price of store brand cereal will ________ and the quantity sold of store brand cereal will _______.
answer
fall; fall
question
Suppose the income elasticity of demand for used jet skis is 3.5. If the level of income decreases by 1 percent, the number of used jet skis sold will, ceteris paribus,
answer
Fall by 3.5%, The income elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in income. If income falls by 1 percent and income elasticity of demand is equal to 3.5, the demand will fall 3.5 percent.
question
A price change will have no effect on total revenue if demand is
answer
Unitary
question
Total revenue is
answer
Quantity sold times price.
question
To find the average percentage change in quantity demanded,
answer
The change in quantity demanded is divided by the average quantity.
question
To find the average percentage change in price,
answer
The change in price is divided by the average price.
question
If a good is normal, its
answer
Income elasticity of demand is positive.
question
For product XYZ, the price elasticity of demand has an absolute value of 3.5. This means that quantity demanded will increase by
answer
3.5 percent for each 1 percent decrease in price, ceteris paribus.
question
Total revenue is equal to
answer
The income from sales.
question
Assume apples and oranges are substitutes. Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product. As a result the cross-price elasticity of apples and oranges will become
answer
Less positive (move closer to zero). If two goods are substitutes, the cross-price elasticity is positive, but becomes less positive due to ad.
question
Ceteris paribus, as the number of substitutes for a good increases, the
answer
Price elasticity of demand should become larger.
question
If the elasticity of demand for cigarettes is 0.4, a seller should
answer
Increase price to increase total revenue, the demand is very inelastic.
question
Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to
answer
If the elasticity of demand is 3.5 (in absolute value), it indicates that demand is very elastic. Consumers have a lot of substitutes available. Therefore Sam should lower his price to increase total revenue because the quantity demanded will increase.
question
A demand curve that is perfectly inelastic is
answer
Vertical.
question
Which of the following is not a determinant of the price elasticity of demand?
answer
The amount of income the consumer has.
question
MP3 players and MP3 files are complementary goods. The cross-price elasticity of demand between MP3 players and MP3 files is expected to be
answer
The cross-price elasticity of demand will be negative for complements because a decrease in the price of MP3 players will cause an increase in demand for MP3 files.
question
Technically the elasticity number is negative because
answer
When price falls quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number.
question
The local baseball team owner hires you to help maximize the team's profits. You are told that costs are constant because enough help is always hired for a full stadium, so assume your task is to maximize revenues from ticket sales. Your advice to the owner should be to
answer
Set the price of tickets at the unitary elasticity price.
question
What is the impact of higher prices on demand?
answer
The impact of higher prices on total revenue depends on the price elasticity of demand. Higher prices result in higher total revenue only if demand is inelastic. If demand is elastic, lower prices result in higher revenues. Therefore to maximize revenue, a firm should charge the price at the point where elasticity goes from elastic to inelastic-in other words is equal to 1.
question
The impact of higher prices on total revenue depends on the price elasticity of demand. Higher prices result in higher total revenue only if demand is inelastic. If demand is elastic, lower prices result in higher revenues. Therefore to maximize revenue, a firm should charge the price at the point where elasticity goes from elastic to inelastic-in other words is equal to 1.
answer
The percentage change in quantity demanded is greater than the percentage in price. Correct
question
If a good is inferior, its
answer
Income elasticity of demand is negative.
question
If the elasticity of demand is 3, and the price rises by 15 percent, then
answer
The basic formula for price elasticity is the price elasticity of demand number = the percentage change in quantity demanded divided by the percentage change in price. 3 = x/.15 =.45, so quantity demanded falls by 45 percent.
question
Cross-price elasticity refers to
answer
How responsive consumers of one good are to a change in the price of another good.
question
How responsive consumers of one good are to a change in the price of another good.
answer
Income elasticity of demand.
question
If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent,
answer
New cars are a normal good, and the income elasticity is +2.0.
question
Price elasticity formula
answer
Price elasticity (E) = (percentage change in quantity demanded) / (percentage change in price) = 1.5% / 10% = 0.15
question
Income elasticity: By how much will popcorn sales increase if average income goes up by 10 percent? (Assume the income elasticity of popcorn is 3.29.)
answer
.33 (3.29 * .10)
question
If the cross-price elasticity of demand between printed textbooks and e-books is 0.3,
answer
They are substitutes
question
The average variable cost curve slopes upward with a higher rate of output in the short run because of
answer
The effect of diminishing returns.
question
If the marginal cost curve is rising, which of the following must be true?
answer
Total costs must be rising.
question
Economic cost
answer
Includes both implicit and explicit costs.
question
How do you find average fixed cost (AFC?)
answer
AFC can be found at any quantity of output by taking the difference between ATC and AVC. For example, at the quantity of 120, AFC is equal to $80 ($288 - $208).
question
Which of the following is a factor of production for the Little Biscuit Bread Company?
answer
Flour.
question
How do you find total cost?
answer
TC can be found by multiplying ATC by quantity at any output level. So at an output level of 120, TC is equal to $34,560 ($288 ×120).
question
Marginal cost
answer
Is the change in total cost from producing one additional unit of output.
question
The period in which at least one input is fixed in quantity is the
answer
Short run
question
Which of the following is the slope of the production function with respect to an input?
answer
The marginal physical product of the input.
question
A production function shows the
answer
Maximum output that can be produced with varying combinations of factor inputs.
question
If a firm could hire all the workers it wanted at a zero wage (i.e., the workers are volunteers), the firm should hire
answer
Enough workers to produce where the MPP equals zero. Correct
question
If workers are paid $10, what is the labor cost per unit of output in Table 21.1 when output is increased from 15 to 35 units of output?
answer
$0.50 per unit. Correct
question
If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is
answer
Marginal cost is the increase in total cost associated with a one-unit increase in production and can be found by dividing the change in total cost by the MPP. If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is 20/15 or $1.33.
question
Average fixed cost (AFC)
answer
Average fixed cost is equal to fixed cost divided by quantity. Fixed cost of 40 (because total cost is $40 at 0 units of output) divided by 20 is equal to $2.00.
question
How to find AFC in chart
answer
AFC can be found at any quantity of output by taking the difference between ATC and AVC. Once you have AFC, you can multiply it by quantity to get FC. For example, at the quantity of 120, AFC is equal to $80 ($288 - $208) and FC is equal to $9,600 ($80 ×120).
question
The change in total output associated with one additional unit of input is the
answer
Marginal physical product. Correct
question
The marginal physical product is the
answer
Change in total output associated with one additional unit of the variable input. Correct
question
If the marginal physical product (MPP) is falling, then the
answer
Marginal cost of each unit of output is rising. Correct
question
The short-run production function shows how output changes when
answer
The quantity of labor changes. Correct
question
Average total cost is equal to
answer
Total cost divided by quantity produced. Correct
question
Ceteris paribus, the law of diminishing returns states that beyond some point, the
answer
Marginal physical product of a factor of production diminishes as more of that factor is used. Correct
question
Which of the following statements is not true regarding the production function and the production possibilities curve?
answer
A production function tells us the maximum amount of output attainable from the use of all resources. Correct
question
Diminishing returns occur because
answer
...
question
The perfectly competitive market structure includes all of the following except
answer
Large advertising budgets.
question
The demand curve confronting a competitive firm is
answer
Horizontal, while market demand is downward-sloping.
question
The demand curve for each perfectly competitive firm is
answer
Horizontal.
question
Short-run profits are maximized at the rate of output where
answer
Marginal revenue is equal to marginal cost.
question
For the perfectly competitive firm, the marginal revenue is always
answer
Constant
question
For perfectly competitive firms, price
answer
Is equal to marginal revenue.
question
If a perfectly competitive firm is producing a rate of output at which MC exceeds price, then the firm
answer
Can increase its profit by decreasing output.
If MC exceeds price, a firm is spending more to produce that extra unit than it is getting back, and total profits will decline. Hence a firm will want to decrease production whenever price is less than MC.
If MC exceeds price, a firm is spending more to produce that extra unit than it is getting back, and total profits will decline. Hence a firm will want to decrease production whenever price is less than MC.
question
If price is less than marginal cost, a perfectly competitive firm should decrease output because
answer
The firm is producing units that cost more to produce than the firm receives in revenue, thus reducing profits (or increasing losses).
question
If price is greater than marginal cost, a perfectly competitive firm should increase output because
answer
Additional units of output will add to the firm's profits (or reduce losses).
question
Profit per unit is equal to
answer
P - ATC.
question
Refer to Figure 22.3 for a perfectly competitive firm. At a market price of $23, profit per unit is maximized at an output of
answer
ATC minimum
question
When price equals ATC
answer
When the market price is $15, the profit-maximizing output is 31 units. At that point price is equal to ATC, and profits will be zero.
question
A catfish farmer will shut down production when
answer
Price falls below AVC.
question
The shutdown point occurs where price is below the minimum of
answer
AVC.
question
A firm experiencing economic losses will still continue to produce output in the short run as long as
answer
Price is above average variable cost.
question
A competitive firm should always continue to operate in the short run as long as
answer
MR > AVC.
question
When price exceeds average variable cost but not average total cost, the firm should, in the short run,
answer
Produce at the rate of output where MR = MC.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
