Download Chapter 2 – Revenue of the Firm

Chapter 2 – Revenue of the Firm
True-False Questions
1.
True
2.
True
3.
True
4.
False
5.
True
6.
True
The demand function for a firm relates the quantities of a product or
service that consumers would like to purchase during some specific
period to the variables which influence consumer decisions to buy the
good or service.
Page 40 – Demand Function
Difficulty: E
The demand function for a firm relates how the quantities of a product or
service that consumers would like to purchase during some specific
period is influenced by variables such as the price of a firm's products,
the prices of related goods, consumers' incomes, the season of the year,
and dollars spent on advertising.
Page 40 – Demand Function
Difficulty: E
A demand curve is a curve or line showing the relation between the
quantity demanded per time period of a good or service and various
possible prices of that good or service.
Page 41 – Demand Curve
Difficulty: D
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the QX equation is QX = 13,400 + 250Px.
Page 42 – Demand Function
Difficulty: M
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the QX equation is QX = 13,400 - 250Px.
Page 42 – Demand Function
Difficulty: M
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, the QX equation is
QX = 8550 – 100PX.
Page 42 – Demand Function
Difficulty: M
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 13
7.
False
8.
True
9.
True
10.
True
11.
True
12.
True
13.
False
14.
True
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, the QX equation is
QX = 1050 – 100PX.
Page 42 – Demand Function
Difficulty: M
Total revenue is the total dollar sales of a firm during some particular
time period and is equal to the price of a product multiplied by the
quantity sold.
Page 43 – Total Revenue
Difficulty: E
Average revenue is the revenue received per unit of product sold.
Page 44 – Average Revenue
Difficulty: M
Average revenue is equal to total revenue divided by quantity sold.
Page 44 – Average Revenue
Difficulty: E
Average revenue is equal to price if all units are sold at the same price.
Page 45 – Average Revenue
Difficulty: M
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the average revenue equation is:
AR = 53.6 - .004QX.
Page 45 – Average Revenue
Difficulty: M
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the average revenue equation is:
AR = 13.6 - .004QX.
Page 45 – Average Revenue
Difficulty: M
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, the price equation is
PX = 85.50 – .01QX.
Page 45 – Average Revenue
Difficulty: M
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
14 Chapter 2 - Revenue of the Firm
15.
False
16.
True
17.
False
18.
True
19.
False
20.
True
21.
True
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, the average revenue
equation is AR = 58.85 – .01QX.
Page 45 – Average Revenue
Difficulty: M
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the total revenue equation is:
TR = 53.6QX - .004QX2.
Page 45 – Total Revenue
Difficulty: M
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the total revenue equation is:
TR = 53.6QX -.004QX.
Page 45 – Total Revenue
Difficulty: M
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, the total revenue
equation is
TR=85.5QX - .01QX2.
Page 45 – Total Revenue
Difficulty: M
Marginal revenue is the rate of change of total revenue with respect to
price.
Page 47 – Marginal Revenue
Difficulty: M
Marginal revenue is the rate of change of total revenue from selling one
more unit of the product.
Page 47 – Marginal Revenue
Difficulty: M
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the marginal revenue equation is:
MR = 53.6-.008QX
Page 48 – Marginal Revenue
Difficulty: M
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 15
22.
False
23.
True
24.
False
25.
False
26.
True
27.
True
28.
True
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the marginal revenue equation is:
MR = 53.6-.004QX2
Page 48 – Marginal Revenue
Difficulty: M
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, the marginal revenue
equation is MR = 85.50 – .02QX.
Page 48 – Marginal Revenue
Difficulty: M
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, the marginal revenue
equation is MR = 85.50 – .01QX2.
Page 48 – Marginal Revenue
Difficulty: M
Technically, arc marginal revenue at a particular output level is the value
of the derivative of the total revenue function with respect to quantity,
dTR/dQ, at that point.
Page 49 – Marginal Revenue
Difficulty: D
Technically, marginal revenue at a particular output level is the value of
the derivative of the total revenue function with respect to quantity,
dTR/dQ, at that point.
Page 49 – Marginal Revenue
Difficulty: D
Arc marginal revenue measures the average rate of change of total
revenue with respect to quantity sold over some range of output.
Page 49 – Arc Marginal Revenue
Difficulty: E
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, marginal revenue will be zero where Q =
6700.
Page 51 – Marginal Revenue
Difficulty: D
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
16 Chapter 2 - Revenue of the Firm
29.
False
30.
True
31.
False
32.
True
33.
True
34.
True
35.
False
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, marginal revenue will be zero where
Q = 13,400.
Page 51 – Marginal Revenue
Difficulty: D
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, marginal revenue will be
zero where Q = 4275.
Page 51 – Marginal Revenue
Difficulty: D
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, marginal revenue will be
zero where Q = 8550.
Page 51 – Marginal Revenue
Difficulty: D
Since the average revenue curve gives the relationship between price
and quantity demanded for a firm,. The average revenue curve is also the
firm’s demand curve.
Page 51 – Average Revenue
Difficulty: E
Marginal revenue at a specific quantity is the slope of the total revenue
curve at that quantity demanded.
Page 51 – Marginal Revenue
Difficulty: E
Given the demand function of QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the maximum total revenue that can be
attained is $179,560.
Page 54 – Total Revenue
Difficulty: D
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, the maximum total revenue that can be
attained is $118,240.
Page 54 – Total Revenue
Difficulty: D
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 17
36.
True
37.
True
38.
True
39.
False
40.
True
41.
False
42.
True
43.
False
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, the maximum total
revenue that can be attained is where P = 42.75 for a total of
$182.756.25.
Page 54 – Total Revenue
Difficulty: D
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, the maximum total
revenue that can be attained is where P = 42.75 and Q = 4275.
Page 54 – Total Revenue
Difficulty: M
Determinants of demand for a given good or service are demand
function variables other then its own price.
Page 55 – Determinants of Demand
Difficulty: E
Any demand function variable that will cause a demand curve to shift is
usually called normal good.
Page 55 – Determinants of Demand
Difficulty: M
If an individual consumer purchases more of a good when his or her
income increases, that good is said to be a normal good.
Page 56 – Normal Good
Difficulty: E
If an individual consumer purchases less of a good when his or her
income increases, that good is said to be a normal good.
Page 56 – Normal Good
Difficulty: M
If an individual consumer purchases less of a good when his or her
income increases, that good is said to be an inferior good.
Page 56 – Inferior Good
Difficulty: E
Frozen yogurt and ice cream are complementary goods.
Page 56 – Substitute Good
Difficulty: E
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
18 Chapter 2 - Revenue of the Firm
44.
True
45.
False
46.
True
47.
True
48.
True
49.
True
50.
False
51.
False
A substitute good is a good that can be used in place of some other good.
Page 56 – Substitute Good
Difficulty: E
Suits and ties are substitute goods.
Page 56 – Complementary Good
Difficulty: E
Complementary goods are generally used with one another.
Page 56 – Complementary Good
Difficulty: E
Determinants of supply are those variables other than a good’s own price
that change the quantity of the good that sellers are willing and able to
sell.
Page 57 – Determinants of Supply
Difficulty: E
The responsiveness of the quantity demanded to a change the product's
own price is the price elasticity of demand.
Page 60 – Price Elasticity of Demand
Difficulty: M
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000. For the range from PX
= $60.00 to PX = $75.00, the arc price elasticity of demand is –3.75.
Page 60 – Price Elasticity of Demand
Difficulty: D
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000. For the range from PX
= $60.00 to PX = $75.00, the arc price elasticity of demand is - 7.05.
Page 60 – Price Elasticity of Demand
Difficulty: D
If the absolute value of the price elasticity of demand is 0, then the
quantity demanded is unitary elastic with respect to price.
Page 61 – Price Elasticity of Demand
Difficulty: M
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 19
52.
True
53.
True
54.
False
55.
True
56.
If the absolute value of the price elasticity of demand is less than 1, then
the quantity demanded is inelastic with respect to price.
Page 61 – Price Elasticity of Demand
Difficulty: E
If the absolute value of the price elasticity of demand is greater than 1,
then the quantity demanded is elastic with respect to price.
Page 61 – Price Elasticity of Demand
Difficulty: M
If the absolute value of the price elasticity of demand is less than 1, then
the quantity demanded is elastic with respect to price.
Page 61 – Price Elasticity of Demand
Difficulty: M
If the absolute value of the price elasticity of demand is greater than 1,
then the quantity demanded is inelastic with respect to price.
Page 61 – Price Elasticity of Demand
Difficulty: M
Given the following price and quantity demanded of good X, we know
that demand for good X is inelastic over this range.
Price X Quantity X
400
5,000
300
6,000
True
57.
True
58.
False
Page 61 – Price Elasticity of Demand
Difficulty: D
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PX = $60.00 PY = $40.00. I = $2500, and A = $5,000. When price
of good X is increased to $75.00, we know that demand for good X is
elastic.
Page 61 – Price Elasticity of Demand
Difficulty: D
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PX = $60.00 PY = $40.00. I = $2500, and A = $5,000. When price
of good X is increased to $75.00, we know that demand for good X is
inelastic.
Page 61 – Price Elasticity of Demand
Difficulty: D
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
20 Chapter 2 - Revenue of the Firm
59.
True
60.
False
61.
True
62.
True
63.
The responsiveness of the quantity demanded to a change in the value of
the income variable in the demand function is the income elasticity of
demand.
Page 71- Income Elasticity of Demand
If the increase in the dollar volume of an individual consumer's
purchases of a good is greater than the dollar volume increase in his or
her income, then that good is said to be a superior good.
Page 71 – Income Elasticity of Demand
Difficulty: D
Given the following income and quantity demanded for good X, we
know that this good is a superior good.
Income Quantity X
45,000
25
60,000
50
Page 71 – Income Elasticity of Demand
Difficulty: D
The responsiveness of the quantity demanded to a change in the value of
the price of a related product contained in the demand function is the
cross price elasticity of demand.
Page 72 – Cross Price Elasticity
Difficulty: M
Based on the following price and quantity demanded information for
goods X and Y, these goods are complementary goods.
Price X
6
6
False
Difficulty: M
Quantity X Price Y Quantity Y
32
10
12
40
15
9
Page 72 – Cross Price Elasticity
Difficulty: D
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 21
Multiple Choice Questions:
1.
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, what is the equation of
the demand curve for X?
a. QX = 1500 – 100PX
b. QX = 1500 + 100PX
c. QX = 8550 – 100PX
d. QX = 8550 + 100PX
e. QX= 4275 – 100PX
Correct Answer: C
2.
Difficulty: M
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, what is the equation of the demand curve
for X?
a. QX = 5000 – 250PX
b. QX = 5000 + 250PX
c. QX= 8550 – 250PX
d. QX = 13,400 – 250PX
e. QX = 13,00 + 250PX
Correct Answer: D
3.
Page 42 – Demand Function
Page 42 – Demand Function
Difficulty: M
The price of a firm's product times the quantity demanded of that
product is:
a. total revenue
b. marginal revenue
c. the firm's demand curve
d. price elasticity of demand
e. average revenue
Correct Answer: A
Page 43 – Total Revenue
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: E
22 Chapter 2 - Revenue of the Firm
4.
If all units of a product are sold at the same price, then the firm's total
revenue divided by the quantity demanded is equal to:
a. marginal revenue
b. the firm's demand curve
c. the product's price
d. price elasticity of demand
e. total average revenue
Correct Answer: C
5.
Difficulty: M
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, what is the price
equation?
a. PX = 15 - .01QX
b. PX = 15 + 100QX
c. PX = 85.50 – 100QX
d. PX = 85.50 - .01QX
e. PX= 85.5 + .01QX
Correct Answer: D
6.
Page 44 – Average Revenue
Page 45 – Price Equation
Difficulty: M
Given the demand function QX = 5,000 – 250PX +120PY +.04I where PY
= $50.00 and I = $60,000, what is the price equation of the demand
curve for X?
a. PX = 20 - .004QX
b. PX = 20 + .004QX
c. PX = 53.6 – .004QX
d. PX= 53.6 + .004QX
e. none of the above
Correct Answer: C
Page 45 – Price Equation
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: M
Chapter 2 - Revenue of the Firm 23
7.
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, what is the total revenue
equation?
a. TR = 15QX - .01QX2
b. TR = 15QX +.01QX2
c. TR = 85.5 – .01QX
d. TR = 85.5 + .01QX2
e. TR = 85.5QX - .01QX2
Correct Answer: E
8.
Difficulty: D
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, what is the total revenue equation?
a. TR = 20QX - .004QX2
b. TR = 20QX +.004QX2
c. TR = 53.6 – .008QX
d. TR = 53.6QX - .004QX2
e. TR = 53.6 + .004QX2
Correct Answer: D
9.
Page 45 – Total Revenue Equation
Page 45 – Total Revenue Equation
Difficulty: D
The rate of change of total revenue from selling one more unit of a
product is its:
a. average revenue
b. the firm's demand curve
c. price elasticity of demand
d. total revenue
e. marginal revenue
Correct Answer: E
Page 47 - Marginal Revenue
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: E
24 Chapter 2 - Revenue of the Firm
10.
Fill in the table for Arc marginal revenue:
Price
Quantity
100
0
90
30
80
60
70
90
60
120
50
150
a.
b.
c.
d.
e.
Correct Answer: C
11.
Arc MR
50, 30, 20, 0, -20,
100, 80, 60, 40, 20
90, 70, 50, 30, 10
70, 50, 30, 20, 0
120, 100, 80, 60, 40
Page 47 – Marginal Revenue
Difficulty: M
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, what is the marginal
revenue equation?
a. MR = 15 - .01QX2
b. MR = 15 +.02QX
c. MR = 85.5 – .02QX
d. MR = 85.5 + .01QX2
e. MR = 85.5 - .02QX2
Correct Answer: C
12.
TR
Page 48 – Marginal Revenue Equation Difficulty: D
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, what is the marginal revenue equation?
a. MR = 20 - .004QX2
b. MR = 20 +.008QX
c. MR = 53.6 - .004QX2
d. MR = 53.6 – .008QX
e. MR = 53.6 + .008QX2
Correct Answer: D
Page 48 – Marginal Revenue Equation Difficulty: D
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 25
13.
Fill in the following table for Total Revenue (TR):
Price
Quantity
100
0
TR
ARC MR
90
30
70
60
50
90
30
60
120
10
50
a.
b.
c.
d.
e.
7500
0, 2700, 4800, 6300, 7200
0, 500, 3800, 5500, 6700
900, 5500, 6800, 7200, 7500
250, 2200, 3300, 4500, 7200
0, 1000, 3000, 4600, 5800
Correct Answer: A
14.
Page 43&49 – Total Revenue
Difficulty: D
Fill in the following table for total revenue (TR):
Price
Quantity
250
0
TR
ARC MR
225
2
175
4
125
6
75
150
8
25
125
a.
b.
c.
d.
e.
1250
0, 450, 700, 950, 1000
0, 350, 500, 850, 1100
0, 450, 800, 1050, 1200
550, 700, 850, 1050, 1250
0, 550, 800, 950, 1100, 1250
Correct Answer: C
Page 43&49 – Total Revenue
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: D
26 Chapter 2 - Revenue of the Firm
15.
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, at what quantity of good
X will marginal revenue equal zero?
a. 2575
b. 4275
c. 6725
d. 8550
e. 10,171
Correct Answer: B
16.
Page 51 – Marginal Revenue
Difficulty: D
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, at what quantity of good X will marginal
revenue equal zero?
a. 2144
b. 3420
c. 5500
d. 6700
e. 7244
Correct Answer: D
Page 51 – Marginal Revenue
Difficulty: D
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000, what is the maximum
total revenue that can be attained?
a. $82,567.52
b. $182,756.25
c. $296,256.73
d. $365,512.5
e. none of the above
Correct Answer: B
Page 54 – Total Revenue
Difficulty: D
17.
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000, what is the maximum total revenue that
can be attained?
a. $79,650
b. $156,567
c. $179,560
d. $227,657
e. none of the above
Correct Answer: C
Page 54 – Total Revenue
Difficulty: D
18.
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 27
19.
Which of the following statements regarding arc elasticities is FALSE?
a. the arc elasticity approximates point elasticity.
b. arc elasticities do not measure responsiveness; only point
elasticities do this.
c. arc elasticities do NOT use derivatives in their calculations.
d. arc elasticities are elasticities calculated between two points
or two values of a variable.
e. the arc elasticity refers to the average responsiveness of Qx.
Correct Answer: B
20.
Difficulty: D
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00. I = $2500, and A = $5,000. When price of good X is
increased from $60.00 to $75.00, what is the arc price elasticity of
demand for good X over this range?
a. 7.05
b. –7.05
c. 9.08
d. –9.08
e. none of the above
Correct Answer: E
21.
Page 59 – Arc Elasticity
Page 60 – Price Elasticity
Difficulty: D
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000. When the price of good X is increased
from $30.00 to $40.00, what is the arc price elasticity of demand for
good X over this range?
a. 2.88
b. –1.88
c. –2.995
d. 2.995
e. none of the above
Correct Answer: B
Page 60 – Price Elasticity
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: D
28 Chapter 2 - Revenue of the Firm
22.
Which of the following statements regarding arc elasticities is TRUE?
a. the arc elasticity value is exactly equal to point elasticity.
b. arc elasticities do not measure responsiveness; only point
elasticities do this.
c. arc elasticities use derivatives in their calculations.
d. arc elasticities are elasticities calculated between two points
or two values of a variable.
e. the arc elasticity measures the responsiveness of Qx to
extremely small changes in the value of an independent
variable.
Correct Answer: D
23.
Difficulty: D
Given the demand function QX = 1500 – 100PX + 75PY + 1.5I + .06A
where PY = $40.00, I = $2500, and A = $5,000. When price of good X is
increased from $60.00 to $75.00, we know that demand for good X over
this range is:
a. elastic
b. inelastic
c. unitary elastic
d. unresponsive to price changes
e. none of the above
Correct Answer: A
24.
Page 60 – Arc Elasticity
Page 61 – Price Elasticity
Difficulty: D
Given the demand function QX = 5,000 – 250PX +120PY +.04I where
PY = $50.00 and I = $60,000. When the price of good X is increased
from $30.00 to $40.00, we know that demand for good X over this range
is:
a. elastic
b. inelastic
c. unitary elastic
d. responsive to price changes
e. a and d
Correct Answer: E
Page 61 – Price Elasticity
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: D
Chapter 2 - Revenue of the Firm 29
25.
You raised the price of your good by 20% and the quantity demanded
declined by 40%. Demand is:
a. elastic.
b. inelastic.
c. unitary elastic
d. completely elastic
e. completely inelastic
Correct Answer: A
26.
Page 61 – Price Elasticity
Difficulty: M
If the quantity demanded does not change with respect to price, then:
a. the demand curve is infinitely elastic.
b. the demand curve is unitary elastic.
c. the demand curve is completely inelastic.
d. the demand curve is in its inelastic range.
e. the demand curve is in its elastic range
Correct Answer: C
28.
Difficulty: M
You raised the price of your good by 40% and the quantity demanded
declined by 20%. Demand is:
a. elastic.
b. inelastic.
c. unitary elastic
d. completely elastic
e. completely inelastic
Correct Answer: B
27.
Page 61 – Price Elasticity
Page 62 – Completely Inelastic
Difficulty: E
If a firm loses all of its sales when it raises its price above the going
market price, then:
a. the demand curve is infinitely elastic.
b. the demand curve is unitary elastic.
c. the demand curve is completely inelastic.
d. the demand curve is in its inelastic range.
e. the demand curve is in its elastic range
Correct Answer: A
Page 62 – Infinitely Elastic
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: E
30 Chapter 2 - Revenue of the Firm
29.
You raised the price of your good by 40% and the quantity demanded
did not change. Demand is:
a. completely elastic and a decline in price would have
yielded a total revenue decrease.
b. completely inelastic and a decline in price would have
yielded a total revenue increase.
c. completely elastic and a decline in price would have
yielded a total revenue increase.
d. completely inelastic and a decline in price would have
yielded a total revenue decrease.
e. unitary elastic and a decline in price would have yielded a
total revenue decrease.
Correct Answer: D
30.
Difficulty: D
You raised the price of your good by 40% and the quantity demanded
did not change. Demand is:
a. elastic.
b. inelastic.
c. unitary elastic
d. completely elastic
e. completely inelastic
Correct Answer: E
31.
Page 62 – Completely Inelastic
Page 62 – Completely Inelastic
Difficulty: M
If the absolute value of the price elasticity of demand is greater than 1,
then:
a. an increase in price increases total revenue
b. an increase in price has no affect total revenue.
c. a decrease in price lowers total revenue.
d. a decrease in price raises total revenue.
e. a change in price has no affect on total revenue.
Correct Answer: D
Page 65 – Price Elasticity
32.
Difficulty: M
If the absolute value of the price elasticity of demand is less than 1, then:
a. an increase in price decreases total revenue
b. an increase in price has no affect total revenue.
c. a decrease in price lowers total revenue.
d. a decrease in price raises total revenue.
e. a change in price has no affect on total revenue.
Correct Answer: C
Page 65 – Price Elasticity
Difficulty: M
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 31
33.
If the absolute value of the price elasticity of demand for good X is
greater than 1, then:
a. X is a complementary good.
b. X is a substitute good.
c. X is an superior good
d. demand for X is said to be inelastic.
e. demand for X is said to be elastic.
Correct Answer: E
34.
Page 65 – Price Elasticity
Difficulty: M
A firm just decreased the selling price of its product. Total revenue
decreases. Which of the following is correct?
a. demand is elastic.
b. demand is inelastic.
c. demand is unitary elastic.
d. the product is a normal good.
e. the product is an inferior good.
Correct Answer: B
36.
Difficulty: M
A firm just increased the selling price of its product. Total revenue
decreases. Which of the following is correct?
a. demand is elastic
b. demand is inelastic
c. demand is unitary elastic.
d. the product is a normal good.
e. the product is a superior good.
Correct Answer: A
35.
Page 65 – Price Elasticity
Page 65 – Price Elasticity
Difficulty: M
A firm just decreased the selling price of its product. Total revenue
increases. Which of the following is correct?
a. demand is elastic
b. demand is inelastic.
c. demand is unitary elastic.
c. the product is a normal good.
e. the product is a superior good.
Correct Answer: A
Page 65 – Price Elasticity
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: M
32 Chapter 2 - Revenue of the Firm
37.
A firm just increased the selling price of its product. Total revenue
increases. Which of the following is correct?
a. demand is elastic
b. demand is inelastic.
c. demand is unitary elastic.
d. the product is a normal good.
e. the product is a superior good
Correct Answer: B
38.
Difficulty: M
You raised the price of your good by 40% and the quantity demanded
declined by 40%. Demand is:
a. elastic.
b. inelastic.
c. unitary elastic
d. completely elastic
e. completely inelastic
Correct Answer: C
39.
Page 65 – Price Elasticity
Page 65 – Price Elasticity
Difficulty: M
You raised the price of your good by 40% and the quantity demanded
declined by 40%. Demand is:
a. completely elastic and a decline in price would have
yielded a total revenue decrease.
b. completely inelastic and a decline in price would have
yielded a total revenue increase.
c. unitary elastic and a decline in price would have yielded no
change in total revenue.
d. unitary elastic and a decline in price would have yielded a
total revenue decrease.
e. elastic and a decline in price would have yielded a total
revenue increase.
Correct Answer: C
Page 65 – Price Elasticity
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: D
Chapter 2 - Revenue of the Firm 33
40.
You raised the price of your good by 20% and the quantity demanded
declined by 40%. Demand is:
a. elastic and a decline in price would have yielded a total
revenue decrease.
b. inelastic and a decline in price would have yielded a total
revenue increase.
c. elastic and a decline in price would have yielded a total
revenue increase.
a. inelastic and a decline in price would have yielded a total
revenue decrease.
b. unitary elastic and a decline in the price would have yielded
a total revenue increase.
Correct Answer: C
41.
Difficulty: D
You raised the price of your good by 40% and the quantity demanded
declined by 20%. Demand is:
a. elastic and a decline in price would have yielded a total
revenue decrease.
b. inelastic and a decline in price would have yielded a total
revenue increase.
c. elastic and a decline in price would have yielded a total
revenue increase.
d. inelastic and a decline in price would have yielded a total
revenue decrease.
e. unitary elastic and a decline in the price would have yielded
a total revenue increase.
Correct Answer: D
42.
Page 61&65 – Price Elasticity
Page 61&65 – Price Elasticity
Difficulty: D
If the income elasticity of demand for good X is greater than 0, but less
than 1, then:
a. X is a normal but not superior good.
b. the answer can not be determined form the above
information.
c. X is an inferior good.
d. X is a normal and also superior good.
e. X is a substitute good.
Correct Answer: A
Page 71 – Income Elasticity
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: M
34 Chapter 2 - Revenue of the Firm
43.
If the income elasticity of demand for good X is greater than 1, then:
a. X is a normal but not superior good.
b. the answer can not be determined form the above
information.
c. X is an inferior good.
d. X is a normal and also superior good.
e. X is a substitute good.
Correct Answer: D
44.
Page 73- Cross Price Elasticity
Difficulty: M
If the value of the cross price elasticity of demand of good X for a
change in good Y's price is less than 0, then:
a. the goods are complementary.
b. the goods are substitutes.
c. demand is said to be inelastic.
d. the goods are superior goods.
e. demand is said to be elastic.
Correct Answer: A
46.
Difficulty: M
If the value of the cross price elasticity of demand of good X for a
change in good Y's price is greater than 0, then:
a. the goods are complementary.
b. the goods are substitutes.
c. demand is said to be inelastic.
d. the goods are superior goods.
e. demand is said to be elastic.
Correct Answer: B
45.
Page 71 – Income Elasticity
Page 73 – Cross Price Elasticity
Difficulty: M
The price of product X has just been increased by 20%. Product Y's
sales increase as a result of Product X's price increase. Which of the
following is true?
a. product X and product Y are substitute goods.
b. product X and product Y are complementary goods.
c. product X and product Y are both normal goods.
d. product X and product Y are not related.
e. product X and product Y are both superior goods.
Correct Answer: A
Page 73 – Cross Price Elasticity
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: M
Chapter 2 - Revenue of the Firm 35
47.
The price of product X has just been increased by 20%. Product Y's
sales decrease as a result of Product X's price increase. Which of the
following is true?
a. product X and product Y are substitute goods.
b. product X and product Y are complementary goods.
c. product X and product Y are both normal goods.
d. product X and product Y are not related.
e. product X and product Y are both inferior goods.
Correct Answer: B
Page 73 – Cross Price Elasticity
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Difficulty: M
36 Chapter 2 - Revenue of the Firm
Problems:
1. Complete the following table:
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│
100
│
0
│
│
│
├─────────┼─────────┼─────────┤
│
│
90
│
30
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
80
│
60
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
70
│
90
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
60
│
120
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
50
│
150
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
40
│
180
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
30
│
210
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
20
│
240
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
10
│
270
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
0
│
300
│
├─────────┘
└─────────┴─────────┴─────────┘
Solution:
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│
100
│
0
│
0
│
│
├─────────┼─────────┼─────────┤
90
│
│
90
│
30
│ 2700
├─────────┤
├─────────┼─────────┼─────────┤
70
│
│
80
│
60
│ 4800
├─────────┤
├─────────┼─────────┼─────────┤
50
│
│
70
│
90
│ 6300
├─────────┤
├─────────┼─────────┼─────────┤
30
│
│
60
│
120
│ 7200
├─────────┤
├─────────┼─────────┼─────────┤
10
│
│
50
│
150
│ 7500
├─────────┤
├─────────┼─────────┼─────────┤ -10
│
│
40
│
180
│ 7200
├─────────┤
├─────────┼─────────┼─────────┤ -30
│
│
30
│
210
│ 6300
├─────────┤
├─────────┼─────────┼─────────┤ -50
│
│
20
│
240
│ 4800
├─────────┤
├─────────┼─────────┼─────────┤ -70
│
│
10
│
270
│ 2700
├─────────┤
├─────────┼─────────┼─────────┤ -90
│
│
0
│
300
│
0
├─────────┘
└─────────┴─────────┴─────────┘
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 37
2. Complete the following table:
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│
20
│
0
│
│
│
├─────────┼─────────┼─────────┤
│
│
18
│
15
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
16
│
30
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
14
│
45
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
12
│
60
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
10
│
75
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
8
│
90
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
6
│
105
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
4
│
120
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
2
│
135
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
0
│
150
│
├─────────┘
└─────────┴─────────┴─────────┘
Solution:
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│
20
│
0
│
0
│
│
├─────────┼─────────┼─────────┤ 18
│
│
18
│
15
│ 270
├─────────┤
├─────────┼─────────┼─────────┤ 14
│
│
16
│
30
│ 480
├─────────┤
├─────────┼─────────┼─────────┤ 10
│
│
14
│
45
│ 630
├─────────┤
├─────────┼─────────┼─────────┤
6
│
│
12
│
60
│ 720
├─────────┤
├─────────┼─────────┼─────────┤
2
│
│
10
│
75
│ 750
├─────────┤
├─────────┼─────────┼─────────┤ -2
│
│
8
│
90
│ 720
├─────────┤
├─────────┼─────────┼─────────┤ -6
│
│
6
│
105
│ 630
├─────────┤
├─────────┼─────────┼─────────┤ -10
│
│
4
│
120
│ 480
├─────────┤
├─────────┼─────────┼─────────┤ -14
│
│
2
│
135
│ 270
├─────────┤
├─────────┼─────────┼─────────┤ -18
│
│
0
│
150
│
0
├─────────┘
└─────────┴─────────┴─────────┘
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
38 Chapter 2 - Revenue of the Firm
3. Complete the following table.
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│
50
│
0
│
│
│
├─────────┼─────────┼─────────┤
│
│
45
│
10
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
40
│
20
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
35
│
30
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
30
│
40
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
25
│
50
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
20
│
60
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
15
│
70
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
10
│
80
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
5
│
90
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
0
│
100
│
├─────────┘
└─────────┴─────────┴─────────┘
Solution:
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│
50
│
0
│
0
│
│
├─────────┼─────────┼─────────┤
45
│
│
45
│
10
│
450
├─────────┤
├─────────┼─────────┼─────────┤
35
│
│
40
│
20
│
800
├─────────┤
├─────────┼─────────┼─────────┤
25
│
│
35
│
30
│ 1050
├─────────┤
├─────────┼─────────┼─────────┤
15
│
│
30
│
40
│ 1200
├─────────┤
├─────────┼─────────┼─────────┤
5
│
│
25
│
50
│ 1250
├─────────┤
├─────────┼─────────┼─────────┤
-5
│
│
20
│
60
│ 1200
├─────────┤
├─────────┼─────────┼─────────┤ -15
│
│
15
│
70
│ 1050
├─────────┤
├─────────┼─────────┼─────────┤ -25
│
│
10
│
80
│
800
├─────────┤
├─────────┼─────────┼─────────┤ -35
│
│
5
│
90
│
450
├─────────┤
├─────────┼─────────┼─────────┤ -45
│
│
0
│
100
│
0
├─────────┘
└─────────┴─────────┴─────────┘
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 39
4. Complete the following table.
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│
100
│
0
│
│
│
├─────────┼─────────┼─────────┤
90
│
│
│
30
│
├─────────┤
├─────────┼─────────┼─────────┤
70
│
│
│
60
│
├─────────┤
├─────────┼─────────┼─────────┤
50
│
│
│
90
│
├─────────┤
├─────────┼─────────┼─────────┤
30
│
│
60
│
120
│
├─────────┤
├─────────┼─────────┼─────────┤
10
│
│
50
│
│ 7500
├─────────┤
├─────────┼─────────┼─────────┤
│
│
40
│
180
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
│
210
│ 6300
├─────────┤
├─────────┼─────────┼─────────┤
-50
│
│
20
│
240
│
├─────────┤
├─────────┼─────────┼─────────┤
-70
│
│
10
│
│ 2700
├─────────┤
├─────────┼─────────┼─────────┤
-90
│
│
│
300
│
├─────────┘
└─────────┴─────────┴─────────┘
Solution:
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│
100
│
0
│
0
│
│
├─────────┼─────────┼─────────┤
90
│
│
90
│
30
│
700
├─────────┤
├─────────┼─────────┼─────────┤
70
│
│
80
│
60
│ 4800
├─────────┤
├─────────┼─────────┼─────────┤
50
│
│
70
│
90
│ 6300
├─────────┤
├─────────┼─────────┼─────────┤
30
│
│
60
│
120
│ 7200
├─────────┤
├─────────┼─────────┼─────────┤
10
│
│
50
│
150
│ 7500
├─────────┤
├─────────┼─────────┼─────────┤ -10
│
│
40
│
180
│ 7200
├─────────┤
├─────────┼─────────┼─────────┤ -30
│
│
30
│
210
│ 6300
├─────────┤
├─────────┼─────────┼─────────┤ -50
│
│
20
│
240
│ 4800
├─────────┤
├─────────┼─────────┼─────────┤ -70
│
│
10
│
270
│ 2700
├─────────┤
├─────────┼─────────┼─────────┤ -90
│
│
0
│
300
│
0
├─────────┘
└─────────┴─────────┴─────────┘
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
40 Chapter 2 - Revenue of the Firm
5. Complete the following table.
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│ 500
│
0
│
│
│
├─────────┼─────────┼─────────┤
│
│ 450
│
10
│
├─────────┤
├─────────┼─────────┼─────────┤
350
│
│
│
20
│
├─────────┤
├─────────┼─────────┼─────────┤
250
│
│
│
30
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│ 300
│
40
│
├─────────┤
├─────────┼─────────┼─────────┤
50
│
│ 250
│
│ 12500 ├─────────┤
├─────────┼─────────┼─────────┤
-50
│
│
│
60
│
├─────────┤
├─────────┼─────────┼─────────┤ -150
│
│ 150
│
│
├─────────┤
├─────────┼─────────┼─────────┤ -250
│
│
│
80
│
├─────────┤
├─────────┼─────────┼─────────┤ -350
│
│
│
90
│
├─────────┤
├─────────┼─────────┼─────────┤ -450
│
│
0
│
100
│
├─────────┘
└─────────┴─────────┴─────────┘
Solution:
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│ 500
│
0
│
0 │
│
├─────────┼─────────┼─────────┤
450
│
│ 450
│
10
│
4500 ├─────────┤
├─────────┼─────────┼─────────┤
350
│
│ 400
│
20
│
8000 ├─────────┤
├─────────┼─────────┼─────────┤
250
│
│ 350
│
30
│ 10500 ├─────────┤
├─────────┼─────────┼─────────┤
150
│
│ 300
│
40
│ 12000 ├─────────┤
├─────────┼─────────┼─────────┤
50
│
│ 250
│
50
│ 12500 ├─────────┤
├─────────┼─────────┼─────────┤
-50
│
│ 200
│
60
│ 12000 ├─────────┤
├─────────┼─────────┼─────────┤ -150
│
│ 150
│
70
│ 10500 ├─────────┤
├─────────┼─────────┼─────────┤ -250
│
│ 100
│
80
│
8000 ├─────────┤
├─────────┼─────────┼─────────┤ -350
│
│
50
│
90
│
4500 ├─────────┤
├─────────┼─────────┼─────────┤ -450
│
│
0
│
100
│
0 ├─────────┘
└─────────┴─────────┴─────────┘
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 41
6. Complete the following table.
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│ 250
│
│
0
│
│
├─────────┼─────────┼─────────┤
│
│
│
2
│ 450
├─────────┤
├─────────┼─────────┼─────────┤ 175
│
│
│
4
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│ 175
│
│ 1050
├─────────┤
├─────────┼─────────┼─────────┤
│
│
│
8
│ 1200
├─────────┤
├─────────┼─────────┼─────────┤
25
│
│
│
10
│
├─────────┤
├─────────┼─────────┼─────────┤ -25
│
│
│
12
│
├─────────┤
├─────────┼─────────┼─────────┤
│
│
75
│
│ 1050
├─────────┤
├─────────┼─────────┼─────────┤ -125
│
│
│
16
│
├─────────┤
├─────────┼─────────┼─────────┤ -175
│
│
│
18
│
├─────────┤
├─────────┼─────────┼─────────┤ -225
│
│
│
20
│
├─────────┘
└─────────┴─────────┴─────────┘
Solution:
┌─────────┬─────────┬─────────┬─────────┐
│
P
│
Q
│
TR
│ Arc MR │
├─────────┼─────────┼─────────┼─────────┤
│ 250
│
0
│
0
│
│
├─────────┼─────────┼─────────┤ 225
│
│ 225
│
2
│ 450
├─────────┤
├─────────┼─────────┼─────────┤ 175
│
│ 200
│
4
│ 800
├─────────┤
├─────────┼─────────┼─────────┤ 125
│
│ 175
│
6
│ 1050
├─────────┤
├─────────┼─────────┼─────────┤
75
│
│ 150
│
8
│ 1200
├─────────┤
├─────────┼─────────┼─────────┤
25
│
│ 125
│
10
│ 1250
├─────────┤
├─────────┼─────────┼─────────┤ -25
│
│ 100
│
12
│ 1200
├─────────┤
├─────────┼─────────┼─────────┤ -75
│
│
75
│
14
│ 1050
├─────────┤
├─────────┼─────────┼─────────┤ -125
│
│
50
│
16
│ 800
├─────────┤
├─────────┼─────────┼─────────┤ -175
│
│
25
│
18
│ 450
├─────────┤
├─────────┼─────────┼─────────┤ -225
│
│
0
│
20
│
0
├─────────┘
└─────────┴─────────┴─────────┘
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
42 Chapter 2 - Revenue of the Firm
7.
Snoopy’s Investigative Service hired a consultant to find what their
demand function is. The consultant found the following demand function.
QS = 5,000 – 250PS +120PN +.04I
Where:
PS =
PN = $50.00
I = $60,000
Q=
Price of Snoopy’s Investigative Service per hour
= Price of Nosy Nancy’s per hour
= Per Capita Income in the market area
Number of investigative hours logged
a. What is the Q equation for Snoopy’s demand curve?
b. What is the average revenue or price equation?
c. What is the total revenue equation?
d. What is the marginal revenue equation?
e. How many hours will Snoopy have to work in order for
marginal revenue to equal zero?
f. What is the maximum total revenue Snoopy’s can bring
in?
Solution:
a. What is the Q equation?
QS  5,000  250 PS  120 PN  .04 I
QS  5,000  250 PS  120(50)  .04(60,000)
QS  5,000  250 PS  6000  2400
QS  13,400  250 PS
b. What is the average revenue or price equation?
QS  13,400  250 PS
250 PS  13,400  QS
13,400  QS
250
PS  53.6  .004QS
PS 
c. What is the total revenue equation?
TR  Q( P)  aQS  bQS
TR  53.6QS  .004QS
2
2
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 43
d. What is the marginal revenue equation?
MR  a  2bQS
MR  53.6  2(.004)QS
MR  53.6  .008QS
e. How many hours will Snoopy have to work in order for
marginal revenue to equal zero?
0  MR  53.6  .008QS
0  53.6  .008QS
.008QS  53.6
QS  6700
f. What is the maximum total revenue Snoopy’s can bring in?
QS  13,400  250 PS
PS  53.6  .004QS
6700  13,400  250 PS
PS  53.6  .004(6700)
250 PS  13,400  6700
PS  53.6  26.80
6700
250
PS  26.80
PS  26.80
PS 
TR  P  Q
TR  26.80  6700
TR  179,560
- or TR  53.6QS  .004QS
2
TR  53.6(6700)  .004(6700 2 )
TR  359,120  .004(44,890,000)
TR  359,120  179,560
TR  179,560
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
44 Chapter 2 - Revenue of the Firm
8.
High-Time, Inc. manufactures low price plastic wrist watches. High-Time
is considering lowering the price of its watches from the current $8 per
unit to $7 per unit. High-Time currently sells 20,000 units per month.
The firm's marketing department estimates the price elasticity of demand
to be -3 over this price range.
a.
b.
If High-Time lowers the price, will the total revenue increase,
decrease or remain unchanged? Why?
If High-Time lowers the price, what will be the new level of
quantity demanded? Of new total revenue?
Solution:
a.
Because the absolute value of the price elasticity is greater than
one, the product is in the elastic range of the demand curve.
Therefore, a decrease in price would lead to an increase in total
revenue.
Ep 
 3.00 
Q2  Q1  P2  P1 

P2  P1  Q2  Q1 
Q2  20,000  7  8
7  8
Q2  20,000
 3.00 
15Q2  20,000
 1Q2  20,000 
 3.00Q2  20,000  15Q2  300,000
3.00Q2  60,000  15Q2  300,000
 12Q2  360,000
Q2  30,000
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 45
b.
TR  P  Q
Old Total Revenue - New Total Revenue  Change in Total Revenue
$210,000  $160,000  $50,000 per month increase
New Total Revenue $7.00  30,000  $210,000 per month
Old Total Revenue $8.00  20,000  $160,000 per month
9.
Wonder-Time, Inc. manufactures high priced gold plated wrist watches.
Wonder-Time is considering lowering the price of its watches from the
current $800 per unit to $700 per unit. Wonder-Time currently sells 5,000
units per year. The firm's staff economist believes the price elasticity of
demand to be -2.5 over this price range.
a.
b.
If Wonder-Time lowers the price, will the total revenue increase,
decrease or remain unchanged? Why?
If Wonder-Time lowers the price, what will be the new level of
quantity demanded? Of new total revenue?
Solution:
a.
Because the absolute value of the price elasticity is greater than
one, the product is in the elastic range of the demand curve.
Therefore, a decrease in price would lead to an increase in total
revenue.
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
46 Chapter 2 - Revenue of the Firm
b.
Ep 
 2.50 
Q2  Q1  P2  P1 

P2  P1  Q2  Q1 
Q2  5,000 700  800

700  800 Q2  5,000
 2.50 
 2.50 
1500Q2  5,000
 100Q2  5,000
1500Q2  750,000,000
 100Q2  500,000
 2.50 100Q2  500,000  1500Q2  7,500,000
250Q2  1,250,000  1500Q2  7,500,000
 1250Q2  8,750,000
Q2  7,000
TR  P  Q
Old Total Revenue ($800  5,000)  $4,000,000 per year
New Total Revenue ($700  7,000)  $4,900,000 per year
Old Total Revnue - New Total Revenue  Change in Total Revenue
$4,900,000 - $4,000,000  $900,000 per year increase
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 47
10.
Oil Field-Tex, Inc manufactures specialty high-pressure valves for use in
the oil patch. Due to all of the horizontal drilling activity, Oil Field-Tex
is considering raising the price of its valves from the current average
price of $2,500 per unit. It is currently selling 600 units per month, but
has been working off a previous inventory buildup. Oil Field-Tex is
trying to bring its quantity demanded down to its maximum output of
500 units per month. If the firm's marketing department estimates the
price elasticity of demand to be -3.00 over the range of $2,500 to $3,500
per valve, what will be the new price have to be in order to bring
demand in line with capacity?
Ep 
 3.00 
Q2  Q1  P2  P1 

P2  P1  Q2  Q1 
500  600  P2  2,500
P2  2500 500  600
 3.00 
 100P2  2,500 
1100P2  2,500 
 3.00 
 1P2  2,500 
11P2  2,500 
 3.0011P2  27,500   P2  2,500
 33P2  82,500   P2  2,500
 32 P2  85,000
P2  $2,656.25
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
48 Chapter 2 - Revenue of the Firm
11.
Golf Widow, Inc manufactures specialty high quality golf carts suitable
for use in the hot desert Southwest. Due to the fact that these carts can
and are driven on city streets, Golf Widow is considering raising the price
of its carts from the current average price of $5,000 per unit. It is currently
selling 600 units per month, but has been working off a previous inventory
buildup. Golf Widow is trying to bring its quantity demanded down to its
maximum output of 500 units per month.
If the firm's marketing
department estimates the price elasticity of demand to be -3.00 over the
range of $5,000 to $7,000 per cart, what will be the new price have to be
in order to bring demand in line with capacity?
Ep 
 3.00 
Q2  Q1  P2  P1 

P2  P1  Q2  Q1 
500  600  P2  5,000
P2  5,000 500  600
 3.00 
 100P2  5,000
1100P2  5,000
 3.00 
 1P2  5,000
11P2  5,000
 3.0011P2  55,000  P2  5,000
 33P2  165,000   P2  5,000
 32 P2  170,000
P2  $5,312.50
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 49
12.
Level-Mow, Inc. manufactures a highly reliable riding lawnmower. Level-Mow
currently sells 1200 units per month at a current price of $1,900.
a.
Its main competitor, Super-Cut, Inc. has just lowered the selling price of
its comparable model from $1,000 to $800. If the arc cross price
elasticity of demand between the two mowers is .818 over the range of
the proposed price cuts, then what will be the new quantity of
lawnmowers sold by Level-Mow, Inc.?
b.
Assume that Super-Cut, Inc. has completed its price reduction mentioned
in part a above. If Level-Mow now wants to counter Super-Cut's price
reduction with one of its own, then to what price must Level-Mow go in
order to return to its original volume of 1200 units?
Solution:
E xy 
Qx 2  Qx1 
P
y2
.818 
 Py 1


P
y2
 Py 1

Qx 2  Qx1 
Qx 2  1,200 800  1,000

800  1,000 Qx 2  1,200
.818 
1800Qx 2  1,200 
 200Qx 2  1,200 
.818 
9Qx 2  1,200 
 1Qx 2  1,200 
.818 Qx 2  1,200   9Qx 2  10,800
 .818Qx 2  981.60  9Qx 2  10,800
 9.818Qx 2  9,818.40
Qx 2  $1,000.04 or approximat ely 1000
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
50 Chapter 2 - Revenue of the Firm
b.(using 1000 from part a)
Ep 
 .6 
Q2  Q1  P2  P1 

P2  P1  Q2  Q1 
1,200  1,000  P2  1,900
P2  1,900 1,200  1,000
 .6 
200P2  1,900 
2,200P2  1,900 
 .6 
1P2  1,900 
11P2  1,900 
 .611P2  20,900   P2  1,900
 6.6 P2  12,540   P2  1,900
 7.6 P2  10,640
P2  $1,400
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 51
13.
The Relatively Little Used Blue Jean Company is trying to capitalize on the
booming market for pre-worn blue jeans. It has been selling 500 pairs of blue
jeans per week at $15.00 each but is considering lowering its price to $12.00.
The outside consultant they hired estimated that its price elasticity of demand to
be -5.00 over this price range.
a.
b.
c.
d.
What would be the new quantity sold if the price were lowered to
$12.00?
What would be the new level of total revenue?
What additional information does Relatively Little Used need to know
before it can determine whether or not a price decrease to $12.00 will
increase profits?
Suppose that following its price reduction Relatively Little Used's
nearest competitor, The Actually Worn But Not Trashed Blue Jean
Company lowers its price from $12.00 to $9.00 a pair. If the cross price
elasticity is .24, what will be that affect of Actually Worn's price
reduction on Relatively Little Used's quantity sold?
Solution:
a.
Ep 
 5.00 
Q2  Q1  P2  P1 

P2  P1  Q2  Q1 
Q2  500 12  15

12  15 Q2  500
 5.00 
27Q2  500
 3Q2  500 
 5.00 
9Q2  500
 1Q2  500 
 5.00 Q2  500   9Q2  4500
5Q2  2500  9Q2  4500
 4Q2  7,000
Q2  1750
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
52 Chapter 2 - Revenue of the Firm
b.
TR  P  Q
TR  $12.00  1750
TR  $21,000
New Total Revenue will be $21,00 per week
c.
In addition to the above income data, the firm would need to know
what, if any, costs would arise as a result of their newer and
significantly higher sales volume. If it unlikely to assume that this
new sales level could be sustained by the same sales support staff
which was required at 500 pair per week.
d.
E xy 
Qx 2  Qx1 
P
y2
.818 
 Py 1


P
y2
 Py 1

Qx 2  Qx1 
Qx 2  1750
9  12

9  12
Qx 2  1750
.818 
21Qx 2  1750 
 3Qx 2  1750 
.818 
7Qx 2  1750 
 1Qx 2  1750 
.24 Qx 2  1750   7Qx 2  12,250
 .24Qx 2  420  7Qx 2  12,250
 7.24Qx 2  11,830
Qx 2  $1663.9779 or approximat ely 1634
The new quantity sold as a result of Actually Worn’s price reduction will be 1634
per week or a reduction of 116 pair per week.
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 53
Problems Requiring Calculus
1.
Given the following demand curve,
P  500  2.5Q
Determine the corresponding total revenue funtion, marginal
revenue function and the average revenue function.
TR  P  Q  500  2.5Q Q  500Q  2.5Q 2
d TR
MR 
 500  5Q
dQ
TR
AR 
 500  2.5Q
Q
2.
Given the following demand curve,
P  750  5Q
Determine the corresponding total revenue funtion, marginal
revenue function and the average revenue function.
TR  P  Q  750  50Q Q  750Q  50Q 2
dTR
MR 
 750  100Q
dQ
TR
AR 
 750  50Q
Q
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
54 Chapter 2 - Revenue of the Firm
3.
Given the following demand curve:
Q  400  .8P
Q  400  .8 P
.8 P  400  Q
P  500  .125Q
TR  P  Q  500  .125Q Q  500Q  .125Q 2
MR 
d TR
 500  .250Q
dQ
TR
 500  .125Q
Q
Determine the corresponding total revenue funtion, marginal
revenue function and the average revenue function.
AR 
4.
Given the following demand curve:
Q  925  25P
Determine the corresponding total revenue function, marginal
revenue function, and the average revenue function
Q  925  25 P
25P  925  Q
P  37  .04Q
TR  P  Q  37  .04Q Q  37Q  .04Q 2
MR 
AR 
d TR
 37  .08Q
dQ
TR
 37  .04Q
Q
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 55
5.
The marketing department of a firm that manufactures small
vehicles has determined the following demand function for their
QV  200,000  50 PV  75PC  0.4 I  0.2 A
where :
QV  the number of vehicles sold weekly by the firm
PV  the price of the vehicle sold by the firm
PC  the price of the vehicle sold by the competitor
I  the average household income
A  the weekly advertisin g dollars spent
cars.
a. If Pv = $10,000, Pc = $8,000, I = $25,000, and A = $300,000,
then find the the price elasticity of demand.
b. Is the price elasticity of demand elastic, unitary elastic or
inelastic? Why? If the firm increases price, what will happen to
total revenue?
c. Assuming the variable values given in Part A above, determine
the income elasticity. Interpret your answer.
d. Find the cross price elasticity of demand between the two
vehicles. Interpret your answer.
Solution:
a.
QV  200,000  50 PV  75PC  0.4 I  0.2 A
QV  200,00  5010,000  758,000  0.425,000  0.2300,000
QV  200,000  500,000  600,000  10,000  60,000
QV  370,000
ep 
dQV PV

dPV QV
 10,000 
e p  50

 370,000 
e p  1.35
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
56 Chapter 2 - Revenue of the Firm
b. -1.35= 1.35 >1. Since the absolute value of the price
elasticity of demand is greater than one, this means that demand
for the good is elastic. Thus, if price is decreased, then total
revenue will increase.
c.
eI 
d QV
I

d I QV
 25,000 
e I  .4

 370,000 
e I  .027
Since the income elasticity of demand is greater than 0 but less
than one, the good is a normal good, but not a superior good. If
income increases, demand will increase but not at the same rate of
increase as income.
d.
e XY 
d QV PC

d PC QV
 8,000 
e XY  75

 370,000 
e XY  1.62
Since the value of the cross price elasticity of dmenad if greater
thatn zero, these goods are substitutes. If the price of the
competitior vehciles increases, then demand for this firm’s goods
will also increase.
6.
The Solis Company has estimated the demand curve for its product is
represented by the equation:
Q  88,000  10 P
Where :
Q  quanity sold per year
P  price per unit
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 57
a. Based on the estimated demand curve, write the equations for
Solis’ total revenue, average revenue, and marginal revenue.
b. What is the maximun total revenue per year that Solis can
obtain from sales of its product? Give the exact dollar amount
and show how you determined it.
c. Calculate the point price elasticity of demand for Solis’ product
when Q = 50,000. Is demand elastic or inelastic at that quantity?
How do you know?
d. Calculate the arc price elasticity of demand for Solis’ product
between Q = 30,00 and Q = 32,000. Interpret your results and
related it to what will happen to total revenue is Solis is initialy
at Q = 30,000 and decides to cut price to increase it sales from
30,000 to 32,000 units.
Solution:
a.
Q  88,000  10 P
10 P  88,000  Q
P  8,800  .1Q
TR  P  Q  8,800  .1Q Q  8,800Q  .1Q 2
TR
 8,800  .1Q
Q
dTR
MR 
 8,800  .2Q
dQ
AR 
b. Total Revenue is maximized where marginal revenue is equal to
zero.
dTR
MR 
 8,800  .2Q
dQ
0  8,800  .2Q
.2Q  8,800
Q  44,000
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
58 Chapter 2 - Revenue of the Firm
To determine price and total revenue using the former figures:
P  8,800  .1Q
P  8,800  .144,000 
P  8,800  4,400
P  $4,400
TR  P  Q
TR  $4,400  44,000
TR  $193,600,00 per year
c.
Q1  30,000
Q2  32,000
P1  8,800  .1Q1
P1  8,800  .130,000 
P1  8,800  3,000
P1  $5,800
P2  8,800  .1Q2
P2  8,800  .132,000 
P2  8,800  3,200
P2  $5,600
ep 
Q P

P Q
Q
 10
P
P  8,800  .1Q
P  8,800  .150,000 
P  8,800  5,000
P  $3,800
3,800
50,000
e p  10  .076
e p  10 
e p   .76
Demand is inelastic becaue the absolute value of the elasticity coefficient is less
than one.
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]
Chapter 2 - Revenue of the Firm 59
d.
Ep 
Q2  Q1  P2  P1 

P2  P1  Q2  Q1 
Ep 
32,000  30,000  5,600  5,800
5,600  5,800 32,000  30,000
Ep 
2,000 11,400

 200 62,000
Ep  1.84
Demand is elastic because the absolute value of the elasticity coefficent is
greater than one. If Solis lowers its price to increase its sales from 30,000 to
32,000 units per year, then its total revenue will increase.
TR1  P1  Q1
TR1  $5,800  30,000
TR1  $174,000,000
TR2  P2  Q2
TR2  $5,600  32,000
TR2  $179,200,000
*You can buy complete chapters by: Www.TestbankU.com Contact Us:
[email protected]