Question 8 You have produced a new economics-self-study app. The marginal cost of distribution is 0. The elasticity of demand is -0.5 if the price is below $5; is between -0.5 and -1.5 if the price is between $5 and $10; and is -1.5 if the price is above $10. Which of the following prices could be a profit-maximizing price for the app?

$0; $4; $8; $12; $16

Question 9 The elasticity of demand for neodymium (a rare earth used to manufacture magnets) is -0.5. An important neodymium mine is hit by a serious accident, halting production for the foreseeable future. Which of the following is true?

(a) The aggregate revenue of the neodymium mining sector falls.

(b) The aggregate revenue of the neodymium mining sector rises.

(c) The aggregate revenue of the neodymium mining sector is unchanged.

(d) Cannot answer without more information.

Question 10 You are selling gourmet donuts. The marginal cost of production and distribution is $1.50/donut. The elasticity of demand is -2. The current price is $3/donut. Consumers become more price sensitive, so that the elasticity of demand changes to -3. However, the quantity of donuts demanded at $3 remains unchanged. Production costs also remain unchanged. Which of the following is true?

(a) Demand for your donuts has expanded.

(b) Demand for your donuts has contracted.

(c) Neither of the above

Question 11 In question 10: Which of the following is true? (a) You should lower the donut price (b) You should raise the donut price (c) You should keep the donut price at $3/donut. (d) Need more information to answer.

Question 12 In questions 10 and 11: As consumers become more price sensitive and the elasticity of demand changes from -2 to -3, and you potentially change price, which of the following is true?

(a) Your profits decrease. (b) Your profits increase. (c) Your profits remain the same. (d) Need more information to answer.