question
What is the formula for the price elasticity of demand?
answer
the percentage change in quantity demanded divided by the percentage change in price.
question
Why isn't elasticity just measured by the slope of the demand curve?
answer
The slope can change dramatically, depending on the units chosen for quantity and price.
question
When XYZ firm entered the market for good A two years back, it kept the price of its product low to attract customers away from its leading competitor. The firm has now established itself and has a market share of 20 percent. The management of XYZ is planning to increase price of A from the current $6 per unit to $7 per unit.
Timothy Walters, the marketing head, however, feels this is not a good idea because it will reduce quantity demanded drastically from the current 1,200 units to 900 units. His colleague and the head of the sales department, Jake Mayers, feels that the quantity demanded would only decline by 250 units. According to Jake, the firm can afford to increase the price because even after the price increase they would still have significant market share.
Timothy and Jake most likely agree with which of the following?
Timothy Walters, the marketing head, however, feels this is not a good idea because it will reduce quantity demanded drastically from the current 1,200 units to 900 units. His colleague and the head of the sales department, Jake Mayers, feels that the quantity demanded would only decline by 250 units. According to Jake, the firm can afford to increase the price because even after the price increase they would still have significant market share.
Timothy and Jake most likely agree with which of the following?
answer
The demand for good A is elastic.
question
Is the demand for agricultural products elastic or inelastic? Why?
The demand for agricultural products is
The demand for agricultural products is
answer
inelastic because such products represent a small share in the consumer's budget.
question
Determine whether the demand for the following product is likely to be elastic or inelastic.
Demand for cola is likely to be _______.
Demand for cola is likely to be _______.
answer
elastic
question
One study found that the price elasticity of demand for soda is
−0.78, while the price elasticity of demand for Coca-Cola is −1.22.
The price elasticity of Coca-Cola is (interpret the absolute value of these elasticitiies, i.e., ignore the minus sign):
−0.78, while the price elasticity of demand for Coca-Cola is −1.22.
The price elasticity of Coca-Cola is (interpret the absolute value of these elasticitiies, i.e., ignore the minus sign):
answer
greater than it is for soda as a product because there are more substitutes for Coca-Cola than soda.
question
Compare the demand for pepper with demand for gasoline.
The demand for pepper is likely
The demand for pepper is likely
answer
more inelastic because pepper tends to represent a smaller fraction of a consumer's budget.
question
The demand for salt is likely to be more inelastic than the demand for
furniture because:
furniture because:
answer
salt is a smaller fraction of a consumer's budget
question
The demand for McDonald's hamburgersshould be _____ ________ than
the demand for all hamburgers.
the demand for all hamburgers.
answer
more elastic than
question
If the demand for orange juice is
elastic, will a decrease in the price of orange juice increase or decrease the revenue received by orange juice sellers?
If the price of orange juice decreases, revenue will ______
elastic, will a decrease in the price of orange juice increase or decrease the revenue received by orange juice sellers?
If the price of orange juice decreases, revenue will ______
answer
increase.
question
Amazon allows authors who self-publish their e-books to set the prices they charge. One author was quoted as saying: "I am able to drop prices and, by sheer volume of sales, increase my income."
answer
elastic because a decrease in price resulted in higher revenue.
question
The formula for the price elasticity of supply is
If an increase of 9 percent in the price of frozen pizzas results in a 13 percent increase in the quantity of frozen pizzas supplied, the price elasticity of supply for frozen pizzas is _.__. (Enter your response rounded to two decimal places.)
Is the supply of pizzas elastic or inelastic?
The supply of frozen is _____
If an increase of 9 percent in the price of frozen pizzas results in a 13 percent increase in the quantity of frozen pizzas supplied, the price elasticity of supply for frozen pizzas is _.__. (Enter your response rounded to two decimal places.)
Is the supply of pizzas elastic or inelastic?
The supply of frozen is _____
answer
the percentage change in quantity supplied divided by the percentage change in price.
1.44
elastic
1.44
elastic
question
Like many other cities, Denver experienced a sharp decline in construction of new houses in the years following 2006. Many carpenters, roofers, and other skilled workers left the area or found jobs in other industries. In addition, builders stopped buying and preparing home lots for construction. According to an article in the Wall Street Journal, by 2014, as consumers increased their demand for new homes in Denver, "New-home prices have surged over the past two years ... amid a shortage of home lots and skilled construction workers."
In the future, the price increases of new houses in Denver can be expected to be
In the future, the price increases of new houses in Denver can be expected to be
answer
smaller because supply is more elastic over time.
question
Chapter 11
answer
Yes
question
What is the difference between the short run and the long run?
Is the amount of time that separates the short run from the long run the same for every firm?
Is the amount of time that separates the short run from the long run the same for every firm?
answer
In the short run, at least one of a firm's inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology.
No
No
question
How are implicit costs different from explicit costs?
answer
An explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost.
question
Suppose Sheri owns a restaurant that serves pizza using three inputs: workers, restaurant space (and layout), and ovens. If workers are
variable, restaurant space (and layout) is variable, and ovens are
variable, then Sheri is producing pizza in the ____ ___.
variable, restaurant space (and layout) is variable, and ovens are
variable, then Sheri is producing pizza in the ____ ___.
answer
long run
question
A student looks at the data in the table to the right and draws this conclusion:
"The marginal product of labor is increasing for the first 3 workers hired, and then it declines for the next 3 workers. I guess each of the first 3 workers must have been hard workers. Then Jill must have had to settle for increasingly poor workers."
Do you agree with the student's analysis? Briefly explain.
"The marginal product of labor is increasing for the first 3 workers hired, and then it declines for the next 3 workers. I guess each of the first 3 workers must have been hard workers. Then Jill must have had to settle for increasingly poor workers."
Do you agree with the student's analysis? Briefly explain.
answer
No. Marginal product initially increases due to
specialization and then decreases due to the law of diminishing returns.
specialization and then decreases due to the law of diminishing returns.
question
Is it possible for a firm to experience a technological change that would increase the marginal product of labor while leaving the average product of labor unchanged? Explain.
answer
No. An increase in the marginal product of labor will increase the average product of labor.
question
Suppose Anna hires workers to cook hamburgers. If the first worker's marginal product is 11 hamburgers, the second worker's marginal product is 21, and the third worker's marginal product is
20, then the average product of labor is __.__hamburgers.
(Enter a numeric response using a real number rounded to one decimal place.)
Now suppose Annahires a fourth worker whose marginal product is
above the average. If so, then the average product of labor will
_______.
20, then the average product of labor is __.__hamburgers.
(Enter a numeric response using a real number rounded to one decimal place.)
Now suppose Annahires a fourth worker whose marginal product is
above the average. If so, then the average product of labor will
_______.
answer
17.33
increase
increase
question
Explain why the marginal cost curve intersects the average
variable cost curve at the level of output where average variable cost is at a minimum.
The marginal cost curve intersects the average
variable cost curve at the level of output where average variable cost is at a minimum because
variable cost curve at the level of output where average variable cost is at a minimum.
The marginal cost curve intersects the average
variable cost curve at the level of output where average variable cost is at a minimum because
answer
when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the averge, it pulls the average up.
question
Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? Briefly explain.
answer
Yes. If marginal cost is less than average total cost, then average total cost will be decreasing.
question
Is Jill Johnson correct when she says the following:
"I am currently producing 10,000 pizzas per month at a total cost of
$60,000. If I produce 10,001 pizzas, my total cost will rise to $60,050.Therefore, my marginal cost of producing pizzas must be increasing."
"I am currently producing 10,000 pizzas per month at a total cost of
$60,000. If I produce 10,001 pizzas, my total cost will rise to $60,050.Therefore, my marginal cost of producing pizzas must be increasing."
answer
Jill's average total cost of production is increasing, so her marginal cost of producing pizzas must be increasing.
question
The marginal cost curve intersects both the average variable cost and the average total cost curves at their _______ points.
answer
minimum
question
Assuming that the cost curves have the usual shape, the dollar difference between average total costs and average variable costs ___________ as out increases.
answer
decreases
question
Economies of scale occur
answer
when a firm's long-run average costs decrease with output.
question
The short-run average cost can never be less the long-run average costs because
answer
in the long run, all inputs are adjusted including the ones that are fixed in the short run.
question
In 2012, then Barnes & Noble CEO William Lynch predicted that although the firm was suffering losses in selling its Nook tablet, "the Nook business will scale in fiscal 2013, reducing losses from last year."
When Lynch said that "the Nook business will scale," he meant the Nook business will
As production levels increase, the Nook would become more profitable because
When Lynch said that "the Nook business will scale," he meant the Nook business will
As production levels increase, the Nook would become more profitable because
answer
increase in size gaining economy of scale advantages.
average cost per unit will fall.
average cost per unit will fall.
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