Choose one correct response for each question. A book company is selling a textbook in economics. The book company has market power and faces a downward-sloping demand curve. 1) When the book company increases the price of the textbook from $200 to $220, the quantity sold decreases from 50,000 copies to 40,000 copies (and the demand curve itself stays the same). The elasticity of the demand at the price off $200 is: A. -2 B. -1 C. -0.5 D. 0 2) Suppose that the cost of textbook production consists of the fixed cost and the constant marginal cost. Suppose, given the optimal pricing strategy, the book company figured out that the marginal revenue is below the average cost. Then, A. The book company should terminate the textbook if the fixed cost is avoidable. B. The book company should keep selling the textbook. C. The book company should operate at the quantity to minimize the average cost. D. We cannot tell from the information that we have. 3) Suppose the book company currently charges the optimal price to maximize its profit, and its current marginal cost is $20. Then, A. The optimal price is lower than $20. B. The optimal price is equal to $20. C. The optimal price higher than $20. D. We cannot tell from the information that we have. 4) Suppose that the book company originally set the optimal uniform price. Now, the book company is considering offering different prices for students and others. If they price optimally to maximize their profit, then which of the following is possible? A. All consumers will be strictly worse off. B. All consumers will be strictly better off. C. Some are better off, and some are worse off. D. None of the above is possible. Now, instead, assume that the textbook industry is competitive, and there are infinitely many identical firms that can potentially enter the industry. 5) Suppose that the industry was in the long-term equilibrium. Since many universities have flipped the classroom, the textbook's demand function has shifted downward. Assume that the production cost for the textbook stays the same. When the industry reaches a new long-term equilibrium with the new demand function, A There are fewer textbook companies. B. The textbook price is lower. C. Neither A nor B. D. Both A and B. For Questions 6 and 7 below , we consider the toll pricing on highway I-101 by MTA. 6) Without a toll, I-101 is often crowded because A. Drivers impose a positive extemality on each other. B. Drivers impose a negative externality on each other. C. The marginal cost of driving on the highway is decreasing in the number of cars. D. The average cost of driving on the highway is decreasing in the number of cars. Given the congestion, MTA converted one lane to an express lane which requires tolls. The following questions focus on the express lane only. Assume that the demand curve for the express lane (the toll price as a function of the number of cars) is downward sloping. 7) When MTA sets a toll of $3 between 12pm-4pm, 450 cars use the express lane per hour. When MTA sets a toll of $6 between 4pm-8pm, 300 cars use the express lane per hour. Given this information, A. The demand elasticity at $3 is -1. Xno n B. The revenue is maximized at $6. C. The marginal revenue at $3 is $3. D. None of the above