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Econ_ Chapter 2/
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 income elasticity of good X is 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. 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 $ 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. 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. The formula for the income elasticity of demand can be written as: When marginal revenue is positive for a linear (inverse) demand function, decreases in output will cause total revenues to 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 _____.
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?
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. 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. 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%.
The following table shows the total revenue and total cost (in dollars) from different sales volumes of the good. Table 2- Refer to Table 2-1. What is the marginal profit of the firm from the sale of the 3rd unit of the good? $ 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. 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:
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- 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. 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:
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
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. 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. 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?
