Question : Table 6-5 Hourly Rental Rate (dollars) Quantity Demanded (hours) : 1387537

 

 

Table 6-5

 

Hourly Rental Rate (dollars)

Quantity Demanded (hours)

$60

40

  75

32

  80

30

100

24

 

21) Refer to Table 6-5.  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.

 

22) Which of the following explains why a firm would be interested in the knowing the price elasticity of demand for a good it sells?

A) The price elasticity of demand can be used to determine the impact of changes in income on quantity sold.

B) Knowing the price elasticity of demand allows the firm to determine how the cost of producing additional units of the good will change.

C) Knowing the price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm’s total profit.

D) The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm’s total revenue.

 

 

23) Opera Estate Girls’ School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue,

A) it is assuming that the demand for attending the school is inelastic.

B) it is assuming that the demand for attending the school is elastic.

C) it is assuming that the demand for attending the school is unit-elastic.

D) it is assuming that the demand for attending the school is perfectly elastic.

 

 

24) Along a downward-sloping linear demand curve, total revenue is the greatest

A) where demand is normal.

B) where demand is the most inelastic.

C) where demand is the most elastic.

D) where demand is unit-elastic.

 

Figure 6-7

 

 

25) Refer to Figure 6-7.  Between points a and b on the demand curve, demand is

A) perfectly inelastic.

B) unit-elastic.

C) perfectly elastic.

D) elastic.

 

 

26) In September 2012, the average price of gasoline in the United States was $3.91 per gallon, and consumers purchased nearly 5 percent less gasoline than they had during September 2011, when the average price of gasoline was $3.66 per gallon. Based on these figures, when the price of gasoline rose from $3.66 per gallon to $3.91 per gallon, total revenue

A) increased.

B) decreased.

C) did not change.

D) There is not enough information to determine what happened to total revenue.

 

27) Assume that the market for barley is in equilibrium and the demand for barley is inelastic. Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley. The drought will cause farm revenue to

A) rise because there will be a shortage of barley.

B) rise because the percentage decrease in quantity sold is less than the percentage increase in price.

C) rise because the percentage increase in quantity sold is greater than the percentage increase in price.

D) fall because of the decrease in the quantity of barley sold.

 

 

28) Assume that you own a small boutique hotel. In an attempt to raise revenue you reduce your rates by 20 percent. However, your revenue falls. What does this indicate about the demand for your boutique hotel rooms?

A) Boutique hotel rooms are inferior goods.

B) Demand is inelastic.

C) The demand curve for your hotel rooms is vertical.

D) Demand is elastic.

 

 

29) Suppose when Nablom’s Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?

A) Sales revenue increased.

B) Sales revenue remained unchanged.

C) Sales revenue decreased.

D) It cannot be determined without information on prices.

 

30) Suppose at the current price, the demand for copper is estimated at -3.14. What happens to sales revenue if the government imposes a price ceiling below the free market equilibrium price in the copper market?

A) Sales revenue falls.

B) Sales revenue rises.

C) Sales revenue remains unchanged because copper is a necessity for most industries.

D) It cannot be determined without information on prices.