Question 1

A good that has a high price elasticity of demand is most likely to:

Accepted Answer

A) have a large number of substitutes. 
B) be purchased by low-income consumers. 
C) be sold at a high price level. 
D) be produced by a single firm. 
E) be a necessary good. 
A) have a large number of substitutes. 
B) be purchased by low-income consumers. 
C) be sold at a high price level. 
D) be produced by a single firm. 
E) be a necessary good.

Question 2

If the income elasticity of demand for a good is greater than one,it implies that:

Accepted Answer

A) as consumers' incomes increase,the quantity demanded of the good falls. 
B) sales of the good are highly sensitive to changes in consumers' income. 
C) the quantity demanded of the good increases during a recession. 
D) an increase in consumers' income will lead to a proportionate increase in sales of the good. 
E) sales of the good are highly sensitive to changes in the prices of other goods. 
A) as consumers' incomes increase,the quantity demanded of the good falls. 
B) sales of the good are highly sensitive to changes in consumers' income. 
C) the quantity demanded of the good increases during a recession. 
D) an increase in consumers' income will lead to a proportionate increase in sales of the good. 
E) sales of the good are highly sensitive to changes in the prices of other goods.

Question 3

When the demand for a product is said to be perfectly inelastic,it implies that:

Accepted Answer

A) the sales of the product are very sensitive to changes in price. 
B) the demand curve for the product is relatively flat. 
C) the profit per-unit increases with an increase in price. 
D) with a change in price,change in quantity demanded is zero. 
E) as price increases,the quantity demanded increases. 
A) the sales of the product are very sensitive to changes in price. 
B) the demand curve for the product is relatively flat. 
C) the profit per-unit increases with an increase in price. 
D) with a change in price,change in quantity demanded is zero. 
E) as price increases,the quantity demanded increases.

Question 4

A company produces a hand-held global positioning system (GPS)used for hiking and sells it for $350 per unit in the United States.The same GPS unit is also sold in Europe at a price of $250 Euros (the equivalent of about $290).Several competing European producers have charged the company with dumping GPS units at unfairly low prices in Europe.What economic defense would the company's lawyer submit for the company's pricing practice?

Accepted Answer

The lawyer's main defense would be that

Question 5

When a firm practices price discrimination in two market segments,the firm:

Accepted Answer

A) must be able to identify market segments that have different price elasticities. 
B) will typically charge higher prices in the larger market segment. 
C) must be selling a heterogeneous product. 
D) must choose market segments that have inelastic demand. 
E) sets price according to the different costs of serving different market segments. 
A) must be able to identify market segments that have different price elasticities. 
B) will typically charge higher prices in the larger market segment. 
C) must be selling a heterogeneous product. 
D) must choose market segments that have inelastic demand. 
E) sets price according to the different costs of serving different market segments.

Question 6

Assume that demand for a service depends upon price and income,where price elasticity of demand [EP] = -0.6 and income elasticity [EY] = 1.2.If price falls by 4% and income rises by 2%,the quantity demanded of the service will _____.

Accepted Answer

A) not be affected as the change in price will cancel the change in income 
B) increase by 6% 
C) increase by 4.8% 
D) decrease by 9.6% 
E) decrease by 2.4% 
A) not be affected as the change in price will cancel the change in income 
B) increase by 6% 
C) increase by 4.8% 
D) decrease by 9.6% 
E) decrease by 2.4%

Question 7

A firm's demand equation is given by: Q = 60 - 60P + 2Y,where Q is quantity,P is price,and Y is income.If price increases by $2 and income increases by $80,then quantity demanded will:

Accepted Answer

A) increase by 160 units. 
B) increase by 100 units. 
C) decrease by 120 units. 
D) decrease by 40 units. 
E) decrease by 60 units. 
A) increase by 160 units. 
B) increase by 100 units. 
C) decrease by 120 units. 
D) decrease by 40 units. 
E) decrease by 60 units.

Question 8

Mathematically explain the relationship between marginal revenue and price elasticity.

Accepted Answer

By definition,the first derivative of to

Question 9

Which of the following is an example of a good with positive network externalities?

Accepted Answer

A) A high-end car that has a long waiting list of prospective buyers 
B) A shaving cream that is sold along with a pair of free razor blades. 
C) An online messaging service that only allows registered users to use the service 
D) An all-you-can-eat buffet at a restaurant 
E) A movie screening that requires customers to buy tickets to watch the movie 
A) A high-end car that has a long waiting list of prospective buyers 
B) A shaving cream that is sold along with a pair of free razor blades. 
C) An online messaging service that only allows registered users to use the service 
D) An all-you-can-eat buffet at a restaurant 
E) A movie screening that requires customers to buy tickets to watch the movie

Question 10

A firm will maximize profits and revenues at the same price when:

Accepted Answer

A) the marginal cost is negligible or zero. 
B) the fixed costs are zero. 
C) the marginal revenue is zero. 
D) the demand for the good is unit elastic. 
E) the demand for the good is highly elastic. 
A) the marginal cost is negligible or zero. 
B) the fixed costs are zero. 
C) the marginal revenue is zero. 
D) the demand for the good is unit elastic. 
E) the demand for the good is highly elastic.

Question 11

Given that digital music players are used to play music downloaded from the Internet,a fall in the price of digital music players will lead to:

Accepted Answer

A) an increase in the price of a song download. 
B) an increase in the demand for downloaded songs. 
C) an increase in the price of broadband plans. 
D) a fall in the demand for digital music players. 
E) an increase in the price of personal laptops. 
A) an increase in the price of a song download. 
B) an increase in the demand for downloaded songs. 
C) an increase in the price of broadband plans. 
D) a fall in the demand for digital music players. 
E) an increase in the price of personal laptops.

Question 12

Recently,the major firms in the United States cigarette industry joined with the government in a settlement of liability claims.Under the tentative agreement,the industry would curb advertising and pay the equivalent of about $15 billion per year (for smoking-related state Medicaid expenses)in exchange for protection against smoker lawsuits.
(a)Before the settlement,a leading cigarette manufacturer estimated its marginal cost at $1.00 per pack and its elasticity of demand at -2.What is its optimal price? The firm's share of the industry payment (based on its historic market share)will raise its average total cost per pack by $0.60.What effect will this have on its optimal price?

Accepted Answer

The success of antismoking campaigns imp

Question 13

Seasons Four Equipment Corporation sells 200 riding lawn mowers per month at a sales price of $1,800 each.Overall,mower demand is described by the price equation: P = 2,600 - 4Q,where P is the price of a mower and Q is the quantity of mowers demanded.The firm's estimated marginal cost is $1,000 per mower.The head of marketing points out that mower demand is quite elastic at the current $1,800 price.Therefore,he recommends cutting price in order to increase revenue and profit.Compute the point price elasticity for mower.Is the marketing chief correct?

Accepted Answer

Price elasticity of mower [E_P] = (∂Q/∂P)(

Question 14

When Rita was a student,she consumed beer with her dinner.Over the years,as her income increased,she substituted beer for a glass of wine.From this information,one can imply that:

Accepted Answer

A) the law of demand does not hold for beer. 
B) wine and beer are complementary goods. 
C) Rita considers beer an inferior good. 
D) the price elasticity of demand for beer is high. 
E) Rita gets more utility from beer than from wine. 
A) the law of demand does not hold for beer. 
B) wine and beer are complementary goods. 
C) Rita considers beer an inferior good. 
D) the price elasticity of demand for beer is high. 
E) Rita gets more utility from beer than from wine.

Question 15

Carefully define the term demand function,and explain its importance to the study of managerial economics.

Accepted Answer

A demand function shows the relationship

Question 16

Firm Z is a U.S.based firm that sells farm equipment and faces demand given by P = 3,000 - Q,where P denotes price in dollars and Q is quantity of units sold per month.In its East coast factory,the firm's fixed costs are $250,000 per month,and its marginal cost of manufacturing the equipment is $1,000 per unit.
(a)Find the firm's profit-maximizing output and price.What is its profit?

Accepted Answer

The key is to recognize this as a pure s

Question 17

Which of the following settings approximate pure selling problems? Explain why or why not.
(i)A toll bridge
(ii)CD sales in a music store
(iii)Selling advertising time on a commercial radio station
(iv)Checking account services
(v)Seats on the subway
(vi)Frozen vegetables in a store
(vii)Fresh fish at the end of the business day

Accepted Answer

(i)Yes.Wear and tear on the bridge from

Question 18

Amalgamated Popcorn,Inc.sells bags of flavored gourmet popcorn in a popular mall.As shop owner and operator,Rhea estimates the demand for flavored popcorn to be: Q = 1,200 - 800P + 2A,where A denotes advertising weekly spending (in dollars),Q is the bags of popcorn demanded and P is the price of a bag of popcorn.She is currently charging $1.50 per bag of popcorn (for which the marginal cost is $0.75)and spending $500 per week on advertising.
(a)Compute the store's price elasticity and advertising elasticity.

Accepted Answer

Yes,increasing advertising spending is p

Question 19

A firm's demand curve is estimated to be Q = 400 - 5P,where Q is quantity and P is the price of the good.At P = $15,the point elasticity of demand is _____.

Accepted Answer

A) -0.23 
B) -0.013 
C) -0.85 
D) -4.35 
E) -5.00 
A) -0.23 
B) -0.013 
C) -0.85 
D) -4.35 
E) -5.00

Question 20

Maria is a sales manager of an appliance store and she sometimes visit outlets run by competing stores.Six months ago,she noticed that rivals' prices were very close to the prices at her store.However,in the last six months,her competitors have lowered their prices to about 15 percent below the prices at her store.Nevertheless,the total unit sales at her store have increased slightly during this time period.Assuming rational buyers and no deceptive advertising,what is the rational explanation for this?

Accepted Answer

If the only factors that have changed ar

A good that has a high price elasticity of demand is most likely to:

If the income elasticity of demand for a good is greater than one,it implies that:

When the demand for a product is said to be perfectly inelastic,it implies that:

When a firm practices price discrimination in two market segments,the firm:

Assume that demand for a service depends upon price and income,where price elasticity of demand [EP] = -0.6 and income elasticity [EY] = 1.2.If price falls by 4% and income rises by 2%,the quantity demanded of the service will _____.

A firm's demand equation is given by: Q = 60 - 60P + 2Y,where Q is quantity,P is price,and Y is income.If price increases by $2 and income increases by $80,then quantity demanded will:

Mathematically explain the relationship between marginal revenue and price elasticity.

Which of the following is an example of a good with positive network externalities?

A firm will maximize profits and revenues at the same price when:

Given that digital music players are used to play music downloaded from the Internet,a fall in the price of digital music players will lead to:

When Rita was a student,she consumed beer with her dinner.Over the years,as her income increased,she substituted beer for a glass of wine.From this information,one can imply that:

Carefully define the term demand function,and explain its importance to the study of managerial economics.

A firm's demand curve is estimated to be Q = 400 - 5P,where Q is quantity and P is the price of the good.At P = $15,the point elasticity of demand is _____.

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

Filters

Exam 3: Demand Analysis and Optimal Pricing

A good that has a high price elasticity of demand is most likely to:

If the income elasticity of demand for a good is greater than one,it implies that:

When the demand for a product is said to be perfectly inelastic,it implies that:

When a firm practices price discrimination in two market segments,the firm:

Assume that demand for a service depends upon price and income,where price elasticity of demand [EP] = -0.6 and income elasticity [EY] = 1.2.If price falls by 4% and income rises by 2%,the quantity demanded of the service will _____.

A firm's demand equation is given by: Q = 60 - 60P + 2Y,where Q is quantity,P is price,and Y is income.If price increases by $2 and income increases by $80,then quantity demanded will:

Mathematically explain the relationship between marginal revenue and price elasticity.

Which of the following is an example of a good with positive network externalities?

A firm will maximize profits and revenues at the same price when:

Given that digital music players are used to play music downloaded from the Internet,a fall in the price of digital music players will lead to:

When Rita was a student,she consumed beer with her dinner.Over the years,as her income increased,she substituted beer for a glass of wine.From this information,one can imply that:

Carefully define the term demand function,and explain its importance to the study of managerial economics.

A firm's demand curve is estimated to be Q = 400 - 5P,where Q is quantity and P is the price of the good.At P = $15,the point elasticity of demand is _____.

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

Filters