question
An increase in total revenue results occurs from which of the following?
answer
Price decreases when demand is elastic. (Elastic is above 1, price and total revenue move in opposite directions.)
question
If demand is inelastic, an increase in the price of a good will cause total revenue to:
answer
Rise. (Inelastic is less than 1, price and total revenue have a positive correlation.)
question
If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is:
answer
price elastic.
question
A health club sells 50 memberships when the monthly price is $60 and 70 memberships when the monthly price is $40. The price elasticity of demand for memberships at this health club is (using the average values method):
answer
0.83 (This uses midpoint formula.)
Q2-Q1/Q1+Q2
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P2-P1/P1+P2
Q2-Q1/Q1+Q2
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P2-P1/P1+P2
question
If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:
answer
keep the price where it is.
question
Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand for bicycles is:
answer
elastic, and total revenue will increase.
question
The term utility refers to the:
answer
pleasure or satisfaction a consumer receives upon consuming a good. (Utility = Satisfaction)
question
Which of the following best describes the economic concept of utility?
answer
Utility measures the satisfaction, or pleasure, that people receive from consuming a good or service.
question
Marginal utility is the change in:
answer
total utility when an extra unit of output is consumed.
question
The statement "as more of a good is consumed, the utility a person derives from each additional unit diminishes" is known as the:
answer
law of diminishing marginal utility.
question
According to the income effect, when the price of automobiles rises, people buy fewer automobiles because:
answer
the purchasing power of their income is reduced.
question
Which of the following is not an explicit cost?
answer
The firm owner's time.
question
An economist left her $100,000-a-year teaching position to work full-time in her own consulting business. In the first year, she had total revenue of $200,000 and business expenses of $100,000. She made a(n):
answer
zero economic profit.
question
Economists say that a firm has a normal profit when:
answer
its economic profit is zero.
question
The long run is a planning period:
answer
during which the firm can vary all inputs including its plant size.
question
Suppose a publisher faces the following costs of producing 10,000 newspapers each month: $5,500 cost of labor; $2,200 monthly mortgage payment; $250 cost of electricity to run the printing presses; $800 for ink and paper; and $200 in city property taxes (based on the value of the building and land). Its total variable costs are:
answer
$6,550.
question
In the long run, a firm might experience rising per-unit cost due to:
answer
diseconomies of scale.
question
Constant returns to scale cause the long-run average cost curve to be:
answer
horizontal. (Doesn't really change much.)
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