154) The percentage change in quantity demanded relative to the percentage change in price is
referred to as
A) price elasticity of demand.
B) demand derivative of price.
C) average demand.
D) marginal revenue.
E) derived demand.
155) Price elasticity of demand (E) is expressed as (∆ means change)
A) E = Percentage change in price (%∆ in P) ÷ Percentage change in quantity demanded (%∆ in
Q).
B) E = Price (P) ÷ Quantity demanded (Q).
C) E = Percentage change in quantity demanded (%∆ in Q) ÷ Percentage change in price (%∆ in
P).
D) E = Quantity demanded (Q) ÷ Price (P).
E) E = Quantity demanded (Q) × Price (P).
156) For the sake of simplicity and by convention, price elasticity figures are shown as
A) positive numbers (0.64, 1.25, etc.).
B) negative numbers (−0.64, −1.25, etc.).
C) Greek letters (∑, ∏, etc.).
D) Roman numerals (I, V, X, etc.).
E) English consonants (P, Q, TR, etc.).
157) Elastic demand exists when
A) a small percentage decrease in price produces a smaller percentage increase in quantity
demanded.
B) a small percentage decrease in price produces a larger percentage increase in quantity
demanded.
C) an increase in price causes a larger increase in quantity demanded.
D) the quantity demanded remains the same regardless of level of price.
E) no change in price produces a small percentage change in quantity demanded.
158) Which of the following statements about price elasticity of demand is most accurate?
A) The more substitutes a product has, the more likely it is to be price elastic.
B) All products show some price inelasticity.
C) Nondiscretionary (necessary) purchases are price elastic.
D) With inelastic demand, reducing price has a very large impact on revenues.
E) With inelastic demand, manufacturers change prices frequently to capitalize on consumer
behavior.
159) Demand for a product is likely to be more price elastic if it
A) is considered a necessity.
B) has many substitutes.
C) is at the mature stage of the product life cycle.
D) requires a small cash outlay.
E) is nondiscretionary.
160) In a snack vending machine, consumers can select one of many choices. These snacks are
A) an ideal example of unitary demand.
B) likely to have a price elasticity equal to 1.
C) more likely to be price elastic.
D) likely to have a price elasticity less than 1.
E) more likely to be price inelastic.
161) Several companies produce latex gloves that are used in a variety of different industries. If
one of the glove manufacturers decreases its price by just a few percentage points, it will result in
a significant increase in quantity demanded. The demand for latex gloves is
A) synergistic.
B) inelastic.
C) unitary.
D) elastic.
E) static.
162) Inelastic demand exists when
A) a small percentage decrease in price produces a smaller percentage increase in quantity
demanded.
B) a small percentage increase in price produces a larger percentage increase in quantity
demanded.
C) an increase in price is impossible due to government restrictions.
D) the quantity demanded remains the same regardless of any changes in marketing strategies.
E) a small percentage decrease in price produces a smaller percentage increase in quantity
supplied.
163) If a firm finds the demand for one of its products is inelastic, it can increase its total
revenues by
A) lowering its price.
B) increasing fixed costs only.
C) increasing variable costs only.
D) increasing both fixed and variable costs.
E) raising its price.
164) Recently, much of the Western United States experienced drought conditions and water
usage was restricted in Denver. Yet, even though most people used less water, the price of water
did not drop. When the drought was declared over, the water company raised water prices.
However, the residents of Denver did not use less water. Here, water is
A) price elastic.
B) price sensitive.
C) price inelastic.
D) price insensitive.
E) unitary elastic.
165) Products such as disposable diapers usually have
A) elastic demand.
B) null elasticity.
C) unitary demand.
D) inelastic supply.
E) inelastic demand.
166) Price elasticity of demand is determined by a number of factors, such as the availability of
substitutes, the necessity of the product or service, and
A) the cash outlay of the purchase relative to a person’s disposable income.
B) the stage of the product or service in its product life cycle.
C) the degree of carrying costs for the manufacturer or distributor.
D) the financial resources of the organization itself.
E) the ability of the organization to meet sudden increases in demand.
167) The total money received from the sale of a product is referred to as
A) profit.
B) total revenue.
C) average revenue.
D) marginal revenue.
E) derived demand.
168) Total revenue refers to
A) the profit made from selling a product or service.
B) the net gain in sales if the unit price is lowered.
C) the least number of units sold needed to cover product, distribution, and promotional costs.
D) the amount at which marginal costs exceed fixed costs.
E) the total money received from the sale of a product.
169) SHAPE magazine is targeted at young women seeking healthier lifestyles. At a price of $3
per copy, 1.25 million copies are sold. If the price per issue is increased to $3.25, only 1 million
copies would be sold. Fixed costs are $1 million and unit variable costs are $0.50 per magazine.
From the information provided here, what is SHAPE magazine’s total revenue obtained at the
lower $3 price?
A) $3,750,000
B) $3,250,000
C) $3,000,000
D) $2,125,000
E) $1,750,000
170) Forever Quilting is a small company that makes quilting kits priced at $120 each. There is
no quantity discount. The costs of the materials that go into each kit total $45. It costs $5 in labor
to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for
heat and electricity, $500 for advertising, and $4,500 for the monthly salary of its owner. Last
month the company sold 150 kits. Forever Quilting’s total revenue for the month was
A) $4,300.
B) $6,200.
C) $7,500.
D) $10,500.
E) $18,000.
171) The total expense incurred by a firm in producing and marketing a product, which equals
the sum of fixed cost and variable cost, is referred to as
A) overhead cost.
B) total cost.
C) unit cost.
D) average cost.
E) marginal cost.
172) Total cost refers to
A) the sum of the expenses of the firm that are stable and do not change with the quantity of a
product that is produced and sold.
B) the change in expenses that results from producing and marketing one additional unit of a
product.
C) the average amount of money received for selling one unit of a product or simply the price of
that unit.
D) the sum of the expenses of the firm that vary directly with the quantity of a product that is
produced and sold.
E) the total expense incurred by a firm in producing and marketing a product, which equals the
sum of fixed cost and variable cost.
173) Fixed cost refers to
A) the sum of the expenses of the firm that vary directly with the quantity of a product that is
produced and sold.
B) the total expense incurred by a firm in producing and marketing a product, which equals the
sum of overhead cost and variable cost.
C) the sum of the expenses of the firm that are stable and do not change with the quantity of a
product that is produced and sold.
D) the average amount of money received for selling one unit of a product or simply the price of
that unit.
E) the change in expenses that results from producing and marketing one additional unit of a
product.
174) The sum of the expenses of a firm that is stable and does not change with the quantity of the
product that is produced and sold is referred to as
A) fixed cost.
B) total cost.
C) variable cost.
D) sunk cost.
E) overhead cost.
175) Rent, executive salaries, and insurance are typical examples of
A) variable costs.
B) fixed costs.
C) unit costs.
D) marginal costs.
E) total costs.
176) Which of the following is a typical example of a fixed cost?
A) taxes
B) raw materials
C) sales commissions
D) building rental expense
E) hourly wages
177) Which of the following would be an example of a fixed cost for a company that makes
carbon monoxide monitoring systems for workers to wear in hazardous areas?
A) the lithium batteries that are used in each monitor
B) the chest harness used to wear the monitor
C) the insurance for the company’s factory
D) the free training videos that are sent to each new customer
E) the stainless-steel, water-resistant cases in which the monitors are stored
178) Variable cost refers to
A) the sum of the expenses of the firm that are stable and do not change with the quantity of a
product that is produced and sold.
B) the sum of the expenses of the firm that change with the quantity of a product that is produced
and sold.
C) the total expense incurred by a firm in producing and marketing a product, which equals the
sum of fixed cost and marginal cost.
D) the average amount of money received for selling one unit of a product or simply the price of
that unit.
E) the change in total cost that results from producing and marketing one additional unit of a
product.
179) The sum of the firm’s expenses that change with the quantity of the product that is produced
and sold is referred to as
A) fixed cost.
B) total cost.
C) marginal cost.
D) unit cost.
E) variable cost.
180) Which of the following is a typical example of a variable cost?
A) shipping costs
B) rent on a building
C) executive salaries
D) insurance premiums
E) leases on delivery trucks
181) Unit variable cost refers to variable cost expressed
A) as the sum of all units sold.
B) on a per unit basis for a product.
C) as a percentage of total sales.
D) as a percentage of fixed costs.
E) as a percentage of total costs.
182) The unit variable cost (UVC) equals variable cost (VC) divided by
A) quantity (Q).
B) fixed costs (FC).
C) total cost (TC).
D) total revenue (TR).
E) price per unit of the product (P).
183) Forever Quilting makes quilting kits priced at $120. The costs of the materials that go into
each kit total $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of
$1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $4,500 for
the monthly salary of its owner. Forever Quilting’s unit variable cost for its kits is
A) $5.
B) $45.
C) $50.
D) $120.
E) $170.
184) General Motors and Chrysler experienced financial distress during the recession resulting in
near bankruptcies fundamentally because
A) the Asian markets such as China, India, and Japan entered the North American market and
captured an even larger share.
B) the value pricing strategy used by the “big three” was flawed and North Americans’
perceptions of value had changed.
C) they were continually using deceptive pricing when establishing the manufacturer’s suggested
retail price for their vehicles.
D) their costs got out of control, causing their total costs to exceed their total revenues.
E) their product line was not changing with the times in order to meet changing environmental
standards regarding fuel economy and emissions.
185) Break-even analysis refers to
A) a process that investigates the difference between marginal revenue and marginal cost.
B) a method of determining just how much a consumer is willing to pay for a product or service.
C) a technique that analyzes the relationship between total revenue and total cost to determine
profitability at various levels of output.
D) the process of determining the quantity of product consumers will buy relative to the quantity
produced by the firm.
E) the graph that shows the maximum number of products consumers will buy at a given price.
186) A technique that analyzes the relationship between total revenue and total cost to determine
profitability at various levels of output is referred to as
A) break-even analysis.
B) marginal analysis.
C) sensitivity analysis.
D) market analysis.
E) tipping point analysis.
187) The quantity at which total revenue and total cost are equal is referred to as
A) the tipping point.
B) the profitability point.
C) incremental return on investment.
D) the break-even point.
E) sustainability.
188) The break-even point (BEP) = [Fixed cost ÷ (Unit price − ________)].
A) Total cost
B) Total expense
C) Marginal revenue
D) Unit variable cost
E) Total number of units produced or quantity
189) The break-even point (BEP) = [________ ÷ (Unit price − Unit variable cost)].
A) Total cost
B) Total expense
C) Fixed cost
D) Unit variable cost
E) Total number of units produced or quantity
190) The break-even point (BEP) = [Fixed cost ÷ (________ − Unit variable cost)].
A) Total cost
B) Total expense
C) Fixed cost
D) Unit variable cost
E) Unit price
191) The owner of a small restaurant that sells takeout fried chicken and biscuits each month
pays $2,500 in rent, $500 in utilities, $750 interest on his loan, insurance premium of $200, and
$250 on advertising on local buses. A bucket of chicken is priced at $9.50. Unit variable costs for
the bucket of chicken are $5.50. How many buckets of chicken does the restaurant need to sell to
break even each month?
A) 442 buckets
B) 764 buckets
C) 1,050 buckets
D) 3,150 buckets
E) 4,200 buckets
192) Each month, the owner of a car wash pays $2,500 in rent, $500 in utilities, $750 interest on
the business loan, an insurance premium of $200, and $250 on advertising on local bus routes. A
full-service car wash is priced at $10.50. Unit variable costs for the car wash are $7.50. At what
level of revenue will the car wash break even?
A) $4,200
B) $10,500
C) $14,700
D) $30,000
E) $39,900
193) You are selling a new line of T-shirts on the boardwalk. The selling price will be $25 per
shirt. The labor cost is $5 per shirt. The administrative costs of operating the company are
estimated to be $60,000 annually, and the sales and marketing expenses are $20,000 a year.
Additionally, the cost of materials will be $10 per shirt. What is the break-even quantity?
A) 2,000 shirts
B) 3,200 shirts
C) 5,334 shirts
D) 8,000 shirts
E) 16,000 shirts