Question : 11) Suppose a decrease in the supply of wheat results : 1245216

 

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.

 

Table 7-10

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.”

 

14) Refer to Table 7-10. 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.

15) 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

 

16) Total revenue is equal to

A) the amount of funds earned by a firm minus its costs of production.

B) the total quantity sold of a product over a given period of time.

C) the price of a product multiplied by the number of units of the product sold.

D) the monetary value of the capital (for example, plant and equipment) a firm owns.

 

17) Which of the following statements is true?

A) Whenever a firm raises its price its total revenue will increase.

B) When a firm lowers its price its total revenue may either increase or decrease.

C) Whenever a firm increases its quantity sold its revenue will increase.

D) Total revenue will equal zero when the demand for a product is unit-elastic.

 

18) If demand is perfectly inelastic, the absolute value of the price elasticity coefficient is

A) infinity.

B) zero.

C) more than one.

D) equal to the absolute value of the slope of the demand curve.

 

19) If a firm raised its price and discovered that its total revenue fell, then the demand for its product is

A) perfectly inelastic.

B) relatively inelastic.

C) perfectly elastic.

D) relatively elastic.

 

Table 7-11

Hourly Rental Rate (dollars)

Quantity Demanded (hours)

$60

40

  75

32

  80

30

100

24

 

20) Refer to Table 7-11. Katie Graham owns a kayak rental service in Santa Barbara. Table 6.3 below shows her estimated demand schedule for kayak rentals per week. She would like to increase her sales revenue by changing the price she charges for rentals. At present she charges $75. Based on the information in the table, Katie

A) is not able to increase her revenue by changing her price because the demand for kayak rentals is unit-elastic.

B) should lower her price to $60 to increase her revenue because the demand for kayak rentals is price elastic.

C) should raise her price to $80 to increase her revenue because the demand for kayak rentals is price inelastic.

D) should raise her price to earn the most revenue.