Multiple-Choice Questions
1. A company currently sells 60,000 units a month at $10 per unit. The marginal cost per unit is $6. The company is considering raising the price by 10% to $11. If the price elasticity of demand is _______________ in that price range, then profit would increase if the company decided to raise the price by 10%.
a. Equal to –3
b. Greater than +1
c. Less than –3.5
d. Greater than –2
2. The price elasticity of demand for bread is –0.5. If the price falls by 5%, the quantity demanded will change by:
a. –2 .5%
b. +2.5%
c. –1.0%
d. +10%
3. Actions a firm can take to change a product’s demand curve include:
a. Reducing the price of a substitute product the firm also produces.
b. Reducing the price of a complementary product the firm also produces.
c. Differentiating its product from competitors by offering an extended warrantee.
d. All of the above will change a product’s demand curve.
4. A product can be classified as a normal good if an increase in the income of buyers causes:
a. A decrease in quantity demanded.
b. A decrease in demand.
c. An increase in demand.
d. An increase in quantity demanded.
5. Assume that beer and pretzels are complements in consumption; if the price of beer increases, we would expect to see:
a. An increase in the demand for pretzels.
b. A decrease in the demand for pretzels.
c. An increase in the quantity of pretzels demanded.
d. A decrease in the quantity of potatoes demanded.