Question 1

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 2

Which of the following is true of an information good or service?

Accepted Answer

A)  In order to maximize profits, firms should set a high price because information goods are expensive to produce. 
B)  The profit-maximizing price should be equal to the average fixed cost of producing the information good. 
C)  Information goods are provided for free because the production cost of an information good is zero. 
D)  The smaller the number of consumers using an information good, the higher the value obtained by other consumers. 
E)  Information goods or services are characterized by high fixed costs but low or negligible marginal costs. 
A)  In order to maximize profits, firms should set a high price because information goods are expensive to produce. 
B)  The profit-maximizing price should be equal to the average fixed cost of producing the information good. 
C)  Information goods are provided for free because the production cost of an information good is zero. 
D)  The smaller the number of consumers using an information good, the higher the value obtained by other consumers. 
E)  Information goods or services are characterized by high fixed costs but low or negligible marginal costs.

Question 3

Give examples of how a bookstore would practice the different forms of price discrimination.

Accepted Answer

In order to practice price discriminatio

Question 4

A profit-maximizing firm's total cost is given by C = 50 + 25Q where Q is the quantity produced. Given that the firm sells 40 units of the good at $55 each, what is the firm's contribution?

Accepted Answer

A)  $2,200 
B)  $200 
C)  $1,200 
D)  $1,000 
E)  $2,100 
A)  $2,200 
B)  $200 
C)  $1,200 
D)  $1,000 
E)  $2,100

Question 5

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 dating 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 dating 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 6

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 _____.

Accepted Answer

A)  18.75% 
B)  6.67% 
C)  8.75% 
D)  10.33% 
E)  12.5% 
A)  18.75% 
B)  6.67% 
C)  8.75% 
D)  10.33% 
E)  12.5%

Question 7

An increase in the demand for motorcycles has led to an increase in the demand for motorcycle helmets. Based on this information, which of the following is likely to be true?

Accepted Answer

A)  Motorcycles and motorcycle helmets are considered to be substitute goods. 
B)  The increase in demand for helmets will be represented as a movement along the demand curve for motorcycle helmets. 
C)  Helmets are considered to be inferior goods. 
D)  With an increase in the demand for motorcycles, the demand curve will shift inward toward the origin. 
E)  In the demand equation for helmets, the coefficient associated with the price of motorcycles will be negative 
A)  Motorcycles and motorcycle helmets are considered to be substitute goods. 
B)  The increase in demand for helmets will be represented as a movement along the demand curve for motorcycle helmets. 
C)  Helmets are considered to be inferior goods. 
D)  With an increase in the demand for motorcycles, the demand curve will shift inward toward the origin. 
E)  In the demand equation for helmets, the coefficient associated with the price of motorcycles will be negative

Question 8

Suppose that a firm is selling a good with a marginal cost of $35. Management estimates demand elasticity to be -2. What is the appropriate price to set in order to maximize profit?

Accepted Answer

P = [E_P/(1+E_P)]MC, where P is pr

Question 9

Other factors constant, a change in _____ will cause a shift in a firm's demand curve.

Accepted Answer

A)  the price of the good or service 
B)  the quantity of the good offered for sale 
C)  the wages paid to labor employed 
D)  the general income level of consumers 
E)  the technology used in the production of the good or service 
A)  the price of the good or service 
B)  the quantity of the good offered for sale 
C)  the wages paid to labor employed 
D)  the general income level of consumers 
E)  the technology used in the production of the good or service

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

Which of the following is true of an information good or service?

Give examples of how a bookstore would practice the different forms of price discrimination.

A profit-maximizing firm's total cost is given by C = 50 + 25Q where Q is the quantity produced. Given that the firm sells 40 units of the good at $55 each, what is the firm's contribution?

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

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 _____.

An increase in the demand for motorcycles has led to an increase in the demand for motorcycle helmets. Based on this information, which of the following is likely to be true?

Suppose that a firm is selling a good with a marginal cost of $35. Management estimates demand elasticity to be -2. What is the appropriate price to set in order to maximize profit?

Other factors constant, a change in _____ will cause a shift in a firm's demand curve.

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

Linear Programming

Auctions and Competitive Bidding Available Online

Filters

Exam 3: Demand Analysis and Optimal Pricing

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

Which of the following is true of an information good or service?

Give examples of how a bookstore would practice the different forms of price discrimination.

A profit-maximizing firm's total cost is given by C = 50 + 25Q where Q is the quantity produced. Given that the firm sells 40 units of the good at $55 each, what is the firm's contribution?

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

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 _____.

An increase in the demand for motorcycles has led to an increase in the demand for motorcycle helmets. Based on this information, which of the following is likely to be true?

Suppose that a firm is selling a good with a marginal cost of $35. Management estimates demand elasticity to be -2. What is the appropriate price to set in order to maximize profit?

Other factors constant, a change in _____ will cause a shift in a firm's demand curve.

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

Linear Programming

Auctions and Competitive Bidding Available Online

Filters