1. The New York Times reports that the toll on the Holland Tunnel was raised from $16 to $20. Following the toll increase, traffic fell by 5 percent. The chairman of the Port Authority (which operates the tunnel) audit committee warned that the toll increase could cause toll revenues to decrease by $48 million per year. Is this statement consistent with economic theory?

(a) No, it is not consistent. Demand is elastic at the original price and thus revenues would increase if the toll were raised.

(b) No, it is not consistent. Demand is inelastic at the original price and thus revenues would increase if the toll were raised.

(c) No, it is not consistent. Demand for driving through the Holland Tunnel is perfectly inelastic and thus revenues would increase if the toll were raised.

(d) Yes, it is consistent. Demand is elastic at the original price and thus revenues would decrease if the toll were raised.

(e) Yes, it is consistent. Demand is inelastic at the original price and thus revenues would decrease if the toll were raised.

2. On September 14, 2017, the Wall Street Journal reported that "Swedish car-parts giant Autoliv, said it is considering splitting itself in two, separating its electronics operation from its business making safety devices like seat belts and air bags." The article further quoted the CEO, Jan Carlson, as saying, "We believe it is time to let them both individually maximize their potential". Wall Street initially seemed to agree as Autoliv's stock was up 8.5% on the news. Based on this information, what does it appear that Autoliv believes is true about its business?

(a) There are economies of scale in producing electronics and auto safety equipment

(b) There are diseconomies of scale in producing electronics and auto safety equipment

(c) There are economies of scope in producing electronics along with auto safety equipment

(d) There are diseconomies of scope in producing electronics along with auto safety equipment

(e) Both (b) and (c)