Managerial Economics Analysis Problems Cases 8e Truett Truett solutions manual and testbank
Chapter 2 – Revenue of the Firm
True-False Questions
1. The demand function for a firm relates the quantities of a product or service that consumers would like to purchase during some specific period to the variables which influence consumer decisions to buy the good or service.
True Page 40 – Demand Function Difficulty: E
2. The demand function for a firm relates how the quantities of a product or service that consumers would like to purchase during some specific period is influenced by variables such as the price of a firm's products, the prices of related goods, consumers' incomes, the season of the year, and dollars spent on advertising.
True Page 40 – Demand Function Difficulty: E
3. A demand curve is a curve or line showing the relation between the quantity demanded per time period of a good or service and various possible prices of that good or service.
True Page 41 – Demand Curve Difficulty: D
4. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the QX equation is QX = 13,400 + 250Px.
False Page 42 – Demand Function Difficulty: M
5. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the QX equation is QX = 13,400 - 250Px.
True Page 42 – Demand Function Difficulty: M
6. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, the QX equation is
QX = 8550 – 100PX.
True Page 42 – Demand Function Difficulty: M
7. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, the QX equation is
QX = 1050 – 100PX.
False Page 42 – Demand Function Difficulty: M
8. Total revenue is the total dollar sales of a firm during some particular time period and is equal to the price of a product multiplied by the quantity sold.
True Page 43 – Total Revenue Difficulty: E
9. Average revenue is the revenue received per unit of product sold.
True Page 44 – Average Revenue Difficulty: M
10. Average revenue is equal to total revenue divided by quantity sold.
True Page 44 – Average Revenue Difficulty: E
11. Average revenue is equal to price if all units are sold at the same price.
True Page 45 – Average Revenue Difficulty: M
12. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the average revenue equation is:
AR = 53.6 - .004QX.
True Page 45 – Average Revenue Difficulty: M
13. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the average revenue equation is:
AR = 13.6 - .004QX.
False Page 45 – Average Revenue Difficulty: M
14. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, the price equation is
PX = 85.50 – .01QX.
True Page 45 – Average Revenue Difficulty: M
15. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, the average revenue equation is AR = 58.85 – .01QX.
False Page 45 – Average Revenue Difficulty: M
16. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the total revenue equation is:
TR = 53.6QX - .004QX2.
True Page 45 – Total Revenue Difficulty: M
17. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the total revenue equation is:
TR = 53.6QX -.004QX.
False Page 45 – Total Revenue Difficulty: M
18. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, the total revenue equation is
TR=85.5QX - .01QX2.
True Page 45 – Total Revenue Difficulty: M
19. Marginal revenue is the rate of change of total revenue with respect to price.
False Page 47 – Marginal Revenue Difficulty: M
20. Marginal revenue is the rate of change of total revenue from selling one more unit of the product.
True Page 47 – Marginal Revenue Difficulty: M
21. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the marginal revenue equation is:
MR = 53.6-.008QX
True Page 48 – Marginal Revenue Difficulty: M
22. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the marginal revenue equation is:
MR = 53.6-.004QX2
False Page 48 – Marginal Revenue Difficulty: M
23. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, the marginal revenue equation is MR = 85.50 – .02QX.
True Page 48 – Marginal Revenue Difficulty: M
24. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, the marginal revenue equation is MR = 85.50 – .01QX2.
False Page 48 – Marginal Revenue Difficulty: M
25. Technically, arc marginal revenue at a particular output level is the value of the derivative of the total revenue function with respect to quantity, dTR/dQ, at that point.
False Page 49 – Marginal Revenue Difficulty: D
26. Technically, marginal revenue at a particular output level is the value of the derivative of the total revenue function with respect to quantity, dTR/dQ, at that point.
True Page 49 – Marginal Revenue Difficulty: D
27. Arc marginal revenue measures the average rate of change of total revenue with respect to quantity sold over some range of output.
True Page 49 – Arc Marginal Revenue Difficulty: E
28. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, marginal revenue will be zero where Q = 6700.
True Page 51 – Marginal Revenue Difficulty: D
29. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, marginal revenue will be zero where
Q = 13,400.
False Page 51 – Marginal Revenue Difficulty: D
30. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, marginal revenue will be zero where Q = 4275.
True Page 51 – Marginal Revenue Difficulty: D
31. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, marginal revenue will be zero where Q = 8550.
False Page 51 – Marginal Revenue Difficulty: D
32. Since the average revenue curve gives the relationship between price and quantity demanded for a firm,. The average revenue curve is also the firm’s demand curve.
True Page 51 – Average Revenue Difficulty: E
33. Marginal revenue at a specific quantity is the slope of the total revenue curve at that quantity demanded.
True Page 51 – Marginal Revenue Difficulty: E
34. Given the demand function of QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the maximum total revenue that can be attained is $179,560.
True Page 54 – Total Revenue Difficulty: D
35. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the maximum total revenue that can be attained is $118,240.
False Page 54 – Total Revenue Difficulty: D
36. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, the maximum total revenue that can be attained is where P = 42.75 for a total of $182.756.25.
True Page 54 – Total Revenue Difficulty: D
37. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, the maximum total revenue that can be attained is where P = 42.75 and Q = 4275.
True Page 54 – Total Revenue Difficulty: M
38. Determinants of demand for a given good or service are demand function variables other then its own price.
True Page 55 – Determinants of Demand Difficulty: E
39. Any demand function variable that will cause a demand curve to shift is usually called normal good.
False Page 55 – Determinants of Demand Difficulty: M
40. If an individual consumer purchases more of a good when his or her income increases, that good is said to be a normal good.
True Page 56 – Normal Good Difficulty: E
41. If an individual consumer purchases less of a good when his or her income increases, that good is said to be a normal good.
False Page 56 – Normal Good Difficulty: M
42. If an individual consumer purchases less of a good when his or her income increases, that good is said to be an inferior good.
True Page 56 – Inferior Good Difficulty: E
43. Frozen yogurt and ice cream are complementary goods.
False Page 56 – Substitute Good Difficulty: E
44. A substitute good is a good that can be used in place of some other good.
True Page 56 – Substitute Good Difficulty: E
45. Suits and ties are substitute goods.
False Page 56 – Complementary Good Difficulty: E
46. Complementary goods are generally used with one another.
True Page 56 – Complementary Good Difficulty: E
47. Determinants of supply are those variables other than a good’s own price that change the quantity of the good that sellers are willing and able to sell.
True Page 57 – Determinants of Supply Difficulty: E
48. The responsiveness of the quantity demanded to a change the product's own price is the price elasticity of demand.
True Page 60 – Price Elasticity of Demand Difficulty: M
49. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000. For the range from PX = $60.00 to PX = $75.00, the arc price elasticity of demand is –3.75.
True Page 60 – Price Elasticity of Demand Difficulty: D
50. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000. For the range from PX = $60.00 to PX = $75.00, the arc price elasticity of demand is - 7.05.
False Page 60 – Price Elasticity of Demand Difficulty: D
51. If the absolute value of the price elasticity of demand is 0, then the quantity demanded is unitary elastic with respect to price.
False Page 61 – Price Elasticity of Demand Difficulty: M
52. If the absolute value of the price elasticity of demand is less than 1, then the quantity demanded is inelastic with respect to price.
True Page 61 – Price Elasticity of Demand Difficulty: E
53. If the absolute value of the price elasticity of demand is greater than 1, then the quantity demanded is elastic with respect to price.
True Page 61 – Price Elasticity of Demand Difficulty: M
54. If the absolute value of the price elasticity of demand is less than 1, then the quantity demanded is elastic with respect to price.
False Page 61 – Price Elasticity of Demand Difficulty: M
55. If the absolute value of the price elasticity of demand is greater than 1, then the quantity demanded is inelastic with respect to price.
True Page 61 – Price Elasticity of Demand Difficulty: M
56. Given the following price and quantity demanded of good X, we know that demand for good X is inelastic over this range.
| Price X | Quantity X |
| 400 | 5,000 |
| 300 | 6,000 |
True Page 61 – Price Elasticity of Demand Difficulty: D
57. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PX = $60.00 PY = $40.00. I = $2500, and A = $5,000. When price of good X is increased to $75.00, we know that demand for good X is elastic.
True Page 61 – Price Elasticity of Demand Difficulty: D
58. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PX = $60.00 PY = $40.00. I = $2500, and A = $5,000. When price of good X is increased to $75.00, we know that demand for good X is inelastic.
False Page 61 – Price Elasticity of Demand Difficulty: D
59. The responsiveness of the quantity demanded to a change in the value of the income variable in the demand function is the income elasticity of demand.
True Page 71- Income Elasticity of Demand Difficulty: M
60. If the increase in the dollar volume of an individual consumer's purchases of a good is greater than the dollar volume increase in his or her income, then that good is said to be a superior good.
False Page 71 – Income Elasticity of Demand Difficulty: D
61. Given the following income and quantity demanded for good X, we know that this good is a superior good.
| Income | Quantity X |
| 45,000 | 25 |
| 60,000 | 50 |
True Page 71 – Income Elasticity of Demand Difficulty: D
62. The responsiveness of the quantity demanded to a change in the value of the price of a related product contained in the demand function is the cross price elasticity of demand.
True Page 72 – Cross Price Elasticity Difficulty: M
63. Based on the following price and quantity demanded information for goods X and Y, these goods are complementary goods.
Price X | Quantity X | Price Y | Quantity Y |
| 6 | 32 | 10 | 12 |
| 6 | 40 | 15 | 9 |
False Page 72 – Cross Price Elasticity Difficulty: D
Multiple Choice Questions:
1. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, what is the equation of the demand curve for X?
a. QX = 1500 – 100PX
b. QX = 1500 + 100PX
c. QX = 8550 – 100PX
d. QX = 8550 + 100PX
e. QX= 4275 – 100PX
Correct Answer: C Page 42 – Demand Function Difficulty: M
2. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, what is the equation of the demand curve for X?
a. QX = 5000 – 250PX
b. QX = 5000 + 250PX
c. QX= 8550 – 250PX
d. QX = 13,400 – 250PX
e. QX = 13,00 + 250PX
Correct Answer: D Page 42 – Demand Function Difficulty: M
3. The price of a firm's product times the quantity demanded of that product is:
a. total revenue
b. marginal revenue
c. the firm's demand curve
d. price elasticity of demand
e. average revenue
Correct Answer: A Page 43 – Total Revenue Difficulty: E
4. If all units of a product are sold at the same price, then the firm's total revenue divided by the quantity demanded is equal to:
a. marginal revenue
b. the firm's demand curve
c. the product's price
d. price elasticity of demand
e. total average revenue
Correct Answer: C Page 44 – Average Revenue Difficulty: M
5. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, what is the price equation?
a. PX = 15 - .01QX
b. PX = 15 + 100QX
c. PX = 85.50 – 100QX
d. PX = 85.50 - .01QX
e. PX= 85.5 + .01QX
Correct Answer: D Page 45 – Price Equation Difficulty: M
6. Given the demand function QX = 5,000 – 250PX +120PY +.04I where PY = $50.00 and I = $60,000, what is the price equation of the demand curve for X?
a. PX = 20 - .004QX
b. PX = 20 + .004QX
c. PX = 53.6 – .004QX
d. PX= 53.6 + .004QX
e. none of the above
Correct Answer: C Page 45 – Price Equation Difficulty: M
7. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, what is the total revenue equation?
a. TR = 15QX - .01QX2
b. TR = 15QX +.01QX2
c. TR = 85.5 – .01QX
d. TR = 85.5 + .01QX2
e. TR = 85.5QX - .01QX2
Correct Answer: E Page 45 – Total Revenue Equation Difficulty: D
8. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, what is the total revenue equation?
a. TR = 20QX - .004QX2
b. TR = 20QX +.004QX2
c. TR = 53.6 – .008QX
d. TR = 53.6QX - .004QX2
e. TR = 53.6 + .004QX2
Correct Answer: D Page 45 – Total Revenue Equation Difficulty: D
9. The rate of change of total revenue from selling one more unit of a product is its:
a. average revenue
b. the firm's demand curve
c. price elasticity of demand
d. total revenue
e. marginal revenue
Correct Answer: E Page 47 - Marginal Revenue Difficulty: E
10. Fill in the table for Arc marginal revenue:
a. 50, 30, 20, 0, -20,
b. 100, 80, 60, 40, 20
c. 90, 70, 50, 30, 10
d. 70, 50, 30, 20, 0
e. 120, 100, 80, 60, 40
Correct Answer: C Page 47 – Marginal Revenue Difficulty: M
11. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, what is the marginal revenue equation?
a. MR = 15 - .01QX2
b. MR = 15 +.02QX
c. MR = 85.5 – .02QX
d. MR = 85.5 + .01QX2
e. MR = 85.5 - .02QX2
Correct Answer: C Page 48 – Marginal Revenue Equation Difficulty: D
12. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, what is the marginal revenue equation?
a. MR = 20 - .004QX2
b. MR = 20 +.008QX
c. MR = 53.6 - .004QX2
d. MR = 53.6 – .008QX
e. MR = 53.6 + .008QX2
Correct Answer: D Page 48 – Marginal Revenue Equation Difficulty: D
13. Fill in the following table for Total Revenue (TR):
a. 0, 2700, 4800, 6300, 7200
b. 0, 500, 3800, 5500, 6700
c. 900, 5500, 6800, 7200, 7500
d. 250, 2200, 3300, 4500, 7200
e. 0, 1000, 3000, 4600, 5800
Correct Answer: A Page 43&49 – Total Revenue Difficulty: D
14. Fill in the following table for total revenue (TR):
a. 0, 450, 700, 950, 1000
b. 0, 350, 500, 850, 1100
c. 0, 450, 800, 1050, 1200
d. 550, 700, 850, 1050, 1250
e. 0, 550, 800, 950, 1100, 1250
Correct Answer: C Page 43&49 – Total Revenue Difficulty: D
15. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, at what quantity of good X will marginal revenue equal zero?
a. 2575
b. 4275
c. 6725
d. 8550
e. 10,171
Correct Answer: B Page 51 – Marginal Revenue Difficulty: D
16. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, at what quantity of good X will marginal revenue equal zero?
a. 2144
b. 3420
c. 5500
d. 6700
e. 7244
Correct Answer: D Page 51 – Marginal Revenue Difficulty: D
17. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000, what is the maximum total revenue that can be attained?
a. $82,567.52
b. $182,756.25
c. $296,256.73
d. $365,512.5
e. none of the above
Correct Answer: B Page 54 – Total Revenue Difficulty: D
18. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, what is the maximum total revenue that can be attained?
a. $79,650
b. $156,567
c. $179,560
d. $227,657
e. none of the above
Correct Answer: C Page 54 – Total Revenue Difficulty: D
19. Which of the following statements regarding arc elasticities is FALSE?
a. the arc elasticity approximates point elasticity.
b. arc elasticities do not measure responsiveness; only point elasticities do this.
c. arc elasticities do NOT use derivatives in their calculations.
d. arc elasticities are elasticities calculated between two points or two values of a variable.
e. the arc elasticity refers to the average responsiveness of Qx.
Correct Answer: B Page 59 – Arc Elasticity Difficulty: D
20. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00. I = $2500, and A = $5,000. When price of good X is increased from $60.00 to $75.00, what is the arc price elasticity of demand for good X over this range?
a. 7.05
b. –7.05
c. 9.08
d. –9.08
e. none of the above
Correct Answer: E Page 60 – Price Elasticity Difficulty: D
21. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000. When the price of good X is increased from $30.00 to $40.00, what is the arc price elasticity of demand for good X over this range?
a. 2.88
b. –1.88
c. –2.995
d. 2.995
e. none of the above
Correct Answer: B Page 60 – Price Elasticity Difficulty: D
22. Which of the following statements regarding arc elasticities is TRUE?
a. the arc elasticity value is exactly equal to point elasticity.
b. arc elasticities do not measure responsiveness; only point elasticities do this.
c. arc elasticities use derivatives in their calculations.
d. arc elasticities are elasticities calculated between two points or two values of a variable.
e. the arc elasticity measures the responsiveness of Qx to extremely small changes in the value of an independent variable.
Correct Answer: D Page 60 – Arc Elasticity Difficulty: D
23. Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A where PY = $40.00, I = $2500, and A = $5,000. When price of good X is increased from $60.00 to $75.00, we know that demand for good X over this range is:
a. elastic
b. inelastic
c. unitary elastic
d. unresponsive to price changes
e. none of the above
Correct Answer: A Page 61 – Price Elasticity Difficulty: D
24. Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000. When the price of good X is increased from $30.00 to $40.00, we know that demand for good X over this range is:
a. elastic
b. inelastic
c. unitary elastic
d. responsive to price changes
e. a and d
Correct Answer: E Page 61 – Price Elasticity Difficulty: D
25. You raised the price of your good by 20% and the quantity demanded declined by 40%. Demand is:
a. elastic.
b. inelastic.
c. unitary elastic
d. completely elastic
e. completely inelastic
Correct Answer: A Page 61 – Price Elasticity Difficulty: M
26. You raised the price of your good by 40% and the quantity demanded declined by 20%. Demand is:
a. elastic.
b. inelastic.
c. unitary elastic
d. completely elastic
e. completely inelastic
Correct Answer: B Page 61 – Price Elasticity Difficulty: M
27. If the quantity demanded does not change with respect to price, then:
a. the demand curve is infinitely elastic.
b. the demand curve is unitary elastic.
c. the demand curve is completely inelastic.
d. the demand curve is in its inelastic range.
e. the demand curve is in its elastic range
Correct Answer: C Page 62 – Completely Inelastic Difficulty: E
28. If a firm loses all of its sales when it raises its price above the going market price, then:
a. the demand curve is infinitely elastic.
b. the demand curve is unitary elastic.
c. the demand curve is completely inelastic.
d. the demand curve is in its inelastic range.
e. the demand curve is in its elastic range
Correct Answer: A Page 62 – Infinitely Elastic Difficulty: E
29. You raised the price of your good by 40% and the quantity demanded did not change. Demand is:
a. completely elastic and a decline in price would have yielded a total revenue decrease.
b. completely inelastic and a decline in price would have yielded a total revenue increase.
c. completely elastic and a decline in price would have yielded a total revenue increase.
d. completely inelastic and a decline in price would have yielded a total revenue decrease.
e. unitary elastic and a decline in price would have yielded a total revenue decrease.
Correct Answer: D Page 62 – Completely Inelastic Difficulty: D
30. You raised the price of your good by 40% and the quantity demanded did not change. Demand is:
a. elastic.
b. inelastic.
c. unitary elastic
d. completely elastic
e. completely inelastic
Correct Answer: E Page 62 – Completely Inelastic Difficulty: M
31. If the absolute value of the price elasticity of demand is greater than 1, then:
a. an increase in price increases total revenue
b. an increase in price has no affect total revenue.
c. a decrease in price lowers total revenue.
d. a decrease in price raises total revenue.
e. a change in price has no affect on total revenue.
Correct Answer: D Page 65 – Price Elasticity Difficulty: M
32. If the absolute value of the price elasticity of demand is less than 1, then:
a. an increase in price decreases total revenue
b. an increase in price has no affect total revenue.
c. a decrease in price lowers total revenue.
d. a decrease in price raises total revenue.
e. a change in price has no affect on total revenue.
Correct Answer: C Page 65 – Price Elasticity Difficulty: M
33. If the absolute value of the price elasticity of demand for good X is greater than 1, then:
a. X is a complementary good.
b. X is a substitute good.
c. X is an superior good
d. demand for X is said to be inelastic.
e. demand for X is said to be elastic.
Correct Answer: E Page 65 – Price Elasticity Difficulty: M
34. A firm just increased the selling price of its product. Total revenue decreases. Which of the following is correct?
a. demand is elastic
b. demand is inelastic
c. demand is unitary elastic.
d. the product is a normal good.
e. the product is a superior good.
Correct Answer: A Page 65 – Price Elasticity Difficulty: M
35. A firm just decreased the selling price of its product. Total revenue decreases. Which of the following is correct?
a. demand is elastic.
b. demand is inelastic.
c. demand is unitary elastic.
d. the product is a normal good.
e. the product is an inferior good.
Correct Answer: B Page 65 – Price Elasticity Difficulty: M
36. A firm just decreased the selling price of its product. Total revenue increases. Which of the following is correct?
a. demand is elastic
b. demand is inelastic.
c. demand is unitary elastic.
c. the product is a normal good.
e. the product is a superior good.
Correct Answer: A Page 65 – Price Elasticity Difficulty: M
37. A firm just increased the selling price of its product. Total revenue increases. Which of the following is correct?
a. demand is elastic
b. demand is inelastic.
c. demand is unitary elastic.
d. the product is a normal good.
e. the product is a superior good
Correct Answer: B Page 65 – Price Elasticity Difficulty: M
38. You raised the price of your good by 40% and the quantity demanded declined by 40%. Demand is:
a. elastic.
b. inelastic.
c. unitary elastic
d. completely elastic
e. completely inelastic
Correct Answer: C Page 65 – Price Elasticity Difficulty: M
39. You raised the price of your good by 40% and the quantity demanded declined by 40%. Demand is:
a. completely elastic and a decline in price would have yielded a total revenue decrease.
b. completely inelastic and a decline in price would have yielded a total revenue increase.
c. unitary elastic and a decline in price would have yielded no change in total revenue.
d. unitary elastic and a decline in price would have yielded a total revenue decrease.
e. elastic and a decline in price would have yielded a total revenue increase.
Correct Answer: C Page 65 – Price Elasticity Difficulty: D
40. You raised the price of your good by 20% and the quantity demanded declined by 40%. Demand is:
a. elastic and a decline in price would have yielded a total revenue decrease.
b. inelastic and a decline in price would have yielded a total revenue increase.
c. elastic and a decline in price would have yielded a total revenue increase.
a. inelastic and a decline in price would have yielded a total revenue decrease.
b. unitary elastic and a decline in the price would have yielded a total revenue increase.
Correct Answer: C Page 61&65 – Price Elasticity Difficulty: D
41. You raised the price of your good by 40% and the quantity demanded declined by 20%. Demand is:
a. elastic and a decline in price would have yielded a total revenue decrease.
b. inelastic and a decline in price would have yielded a total revenue increase.
c. elastic and a decline in price would have yielded a total revenue increase.
d. inelastic and a decline in price would have yielded a total revenue decrease.
e. unitary elastic and a decline in the price would have yielded a total revenue increase.
Correct Answer: D Page 61&65 – Price Elasticity Difficulty: D
42. If the income elasticity of demand for good X is greater than 0, but less than 1, then:
a. X is a normal but not superior good.
b. the answer can not be determined form the above information.
c. X is an inferior good.
d. X is a normal and also superior good.
e. X is a substitute good.
Correct Answer: A Page 71 – Income Elasticity Difficulty: M
43. If the income elasticity of demand for good X is greater than 1, then:
a. X is a normal but not superior good.
b. the answer can not be determined form the above information.
c. X is an inferior good.
d. X is a normal and also superior good.
e. X is a substitute good.
Correct Answer: D Page 71 – Income Elasticity Difficulty: M
44. If the value of the cross price elasticity of demand of good X for a change in good Y's price is greater than 0, then:
a. the goods are complementary.
b. the goods are substitutes.
c. demand is said to be inelastic.
d. the goods are superior goods.
e. demand is said to be elastic.
Correct Answer: B Page 73- Cross Price Elasticity Difficulty: M
45. If the value of the cross price elasticity of demand of good X for a change in good Y's price is less than 0, then:
a. the goods are complementary.
b. the goods are substitutes.
c. demand is said to be inelastic.
d. the goods are superior goods.
e. demand is said to be elastic.
Correct Answer: A Page 73 – Cross Price Elasticity Difficulty: M
46. The price of product X has just been increased by 20%. Product Y's sales increase as a result of Product X's price increase. Which of the following is true?
a. product X and product Y are substitute goods.
b. product X and product Y are complementary goods.
c. product X and product Y are both normal goods.
d. product X and product Y are not related.
e. product X and product Y are both superior goods.
Correct Answer: A Page 73 – Cross Price Elasticity Difficulty: M
47. The price of product X has just been increased by 20%. Product Y's sales decrease as a result of Product X's price increase. Which of the following is true?
a. product X and product Y are substitute goods.
b. product X and product Y are complementary goods.
c. product X and product Y are both normal goods.
d. product X and product Y are not related.
e. product X and product Y are both inferior goods.
Correct Answer: B Page 73 – Cross Price Elasticity Difficulty: M
Problems:
1. Complete the following table:
┌─────────┬─────────┬─────────┬─────────┐
│ P │ Q │ TR │ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│ 100 │ 0 │ │ │
├─────────┼─────────┼─────────┤ │
│ 90 │ 30 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 80 │ 60 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 70 │ 90 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 60 │ 120 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 50 │ 150 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 40 │ 180 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 30 │ 210 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 20 │ 240 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 10 │ 270 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 0 │ 300 │ ├─────────┘
└─────────┴─────────┴─────────┘
Solution:
┌─────────┬─────────┬─────────┬─────────┐
│ P │ Q │ TR │ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│ 100 │ 0 │ 0 │ │
├─────────┼─────────┼─────────┤ 90 │
│ 90 │ 30 │ 2700 ├─────────┤
├─────────┼─────────┼─────────┤ 70 │
│ 80 │ 60 │ 4800 ├─────────┤
├─────────┼─────────┼─────────┤ 50 │
│ 70 │ 90 │ 6300 ├─────────┤
├─────────┼─────────┼─────────┤ 30 │
│ 60 │ 120 │ 7200 ├─────────┤
├─────────┼─────────┼─────────┤ 10 │
│ 50 │ 150 │ 7500 ├─────────┤
├─────────┼─────────┼─────────┤ -10 │
│ 40 │ 180 │ 7200 ├─────────┤
├─────────┼─────────┼─────────┤ -30 │
│ 30 │ 210 │ 6300 ├─────────┤
├─────────┼─────────┼─────────┤ -50 │
│ 20 │ 240 │ 4800 ├─────────┤
├─────────┼─────────┼─────────┤ -70 │
│ 10 │ 270 │ 2700 ├─────────┤
├─────────┼─────────┼─────────┤ -90 │
│ 0 │ 300 │ 0 ├─────────┘
└─────────┴─────────┴─────────┘
2. Complete the following table:
┌─────────┬─────────┬─────────┬─────────┐
│ P │ Q │ TR │ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│ 20 │ 0 │ │ │
├─────────┼─────────┼─────────┤ │
│ 18 │ 15 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 16 │ 30 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 14 │ 45 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 12 │ 60 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 10 │ 75 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 8 │ 90 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 6 │ 105 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 4 │ 120 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 2 │ 135 │ ├─────────┤
├─────────┼─────────┼─────────┤ │
│ 0 │ 150 │ ├─────────┘
└─────────┴─────────┴─────────┘
Solution:
┌─────────┬─────────┬─────────┬─────────┐
│ P │ Q │ TR │ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│ 20 │ 0 │ 0 │ │
├─────────┼─────────┼─────────┤ 18 │
│ 18 │ 15 │ 270 ├─────────┤
├─────────┼─────────┼─────────┤ 14 │
│ 16 │ 30 │ 480 ├─────────┤
├─────────┼─────────┼─────────┤ 10 │
│ 14 │ 45 │ 630 ├─────────┤
├─────────┼─────────┼─────────┤ 6 │
│ 12 │ 60 │ 720 ├─────────┤
├─────────┼─────────┼─────────┤ 2 │
│ 10 │ 75 │ 750 ├─────────┤
├─────────┼─────────┼─────────┤ -2 │
│ 8 │ 90 │ 720 ├─────────┤
├─────────┼─────────┼─────────┤ -6 │
│ 6 │ 105 │ 630 ├─────────┤
├─────────┼─────────┼─────────┤ -10 │
│ 4 │ 120 │ 480 ├─────────┤
├─────────┼─────────┼─────────┤ -14 │
│ 2 │ 135 │ 270 ├─────────┤
├─────────┼─────────┼─────────┤ -18 │
│ 0 │ 150 │ 0 ├─────────┘
└─────────┴─────────┴─────────┘
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