11) Suppose a decrease in the supply of wheat results in an increase in revenue. This indicates that
A) the decrease in quantity sold is proportionately larger than the resulting change in price.
B) the resulting increase in price is proportionately greater than decrease in quantity sold.
C) the demand curve for wheat must be vertical.
D) the supply curve for wheat must be vertical.
12) Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for milk?
A) Sales revenue falls.
B) Sales revenue rises.
C) Sales revenue remains unchanged.
D) It cannot be determined without information on prices.
13) Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is ∞. What happens to sales revenue if the restaurant increases its price by 5 percent?
A) Sales revenue falls by less than 5 percent.
B) Sales revenue remains unchanged.
C) Sales revenue falls by 100 percent.
D) It cannot be determined without information on prices.
14) Apple introduced the iPhone to the market in June 2007. Within two months, it had become clear that the price elasticity of demand for iPhones was
A) significantly higher than had been expected.
B) very close to original estimates.
C) significantly lower than had been expected.
D) essentially unit elastic.
Table 7-4
The publisher of a magazine gives his staff the following information:
Current price
$2.00 per issue
Current sales
150,000 copies per month
Current revenue
$300,000 per month
Current total costs
$450,000 per month
He tells the staff, “Our costs are currently $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue. This will result in our revenue being exactly equal to our cost.”
15) Refer to Table 7-4. Which of the following statements is correct?
A) The publisher’s analysis is correct only if the demand is perfectly elastic.
B) The publisher’s analysis is correct only if the demand is elastic.
C) The publisher’s analysis is correct only if the demand is perfectly inelastic.
D) The publisher’s analysis is correct only if the demand is unit-elastic.
16) An article in the Wall Street Journal noted the following: Instead of relying on a full-coach, round-trip unrestricted fare of about $2,000 between Cleveland and Los Angeles …Continental [Airlines] since June has offered a $716 unrestricted fare in that market …. Through October, the test resulted in about the same revenue that Continental thinks it would have collected with its higher fare.
Source: Scott McCartney, “Airlines Try Cutting Business Fares, Find They Don’t Lose Revenue,” Wall Street Journal, November 22, 2002.
What is the absolute value of the price elasticity of demand on this airline route?
A) 0
B) less than 1
C) greater than 1
D) approximately 1
17) If a firm’s goal is to maximize revenue, it will price its product to correspond to the unit-elastic segment of its demand curve.
18) When Audrina raised the price of her homemade cookies, her total revenue increased. This suggests that the demand for Audrina’s cookies is elastic.
19) Firms estimate the price elasticity of demand for new products by conducting market experiments in which firms try different prices and observe the resulting change in quantity demanded.
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