c.
–2.00
d.
–0.20
e.
–0.50
37. Marginal revenue can be defined as the:
a.
percent increase in total revenue resulting from a one percent increase in output
b.
increase in total revenue resulting from a one unit increase in output
c.
total revenue divided by output
d.
average revenue multiplied by output
e.
average revenue multiplied by output divided by 4
38. Total revenue decreases as output increases whenever:
a.
marginal revenue is less than average revenue
b.
marginal revenue is greater than average revenue
c.
average revenue is decreasing
d.
marginal revenue is negative
e.
average revenue is negative
39. Along a demand curve with unitary elasticity everywhere, total revenue:
a.
increases as output increases
b.
decreases as output increases
c.
remains constant as output increases
d.
increases and then decreases as output increases
e.
decreases and then increases as output increases
40. The price elasticity of demand can be interpreted as the:
a.
percentage change in the quantity demanded divided by the percentage change in
the good’s price
b.
percentage change in the quantity demanded divided by the percentage change in a
substitute good’s price
c.
percentage change in the good’s price divided by the percentage change in quantity
demanded
d.
change in the quantity demanded of a good divided by the change in its price
e.
change in the quantity demanded of a good divided by the change in a related
good’s price
41. The marginal cost of producing a paperback is half the marginal cost of producing a
hardback version sold to consumers at four times the paperback price. If the price elasticity
of demand for paperbacks is –4, then the price elasticity of demand for hardcover books is:
a.
–2.6
b.
–3.6
c.
–1.6
d.
–0.6
e.
–4.6
42. The demand for fax machines in thousands of units has been estimated to be Q = 1,000 –
1.5P + 5L, where P is the price of the machines and L is the average cost of a 10-minute
midday call from Los Angeles to New York. At a fax machine price of $400 and a phone
call cost of $10, the price elasticity of demand for fax machines is:
a.
–4.0
b.
–2.50
c.
–0.61
d.
–0.25
e.
–1.33
43. A manufacturer of infant clothes has found that the demand for its product is given
by Q = 100P–1.25A0.5, where P is price and A is advertising expenditures. The price
elasticity of demand for these infant clothes is:
a.
–0.8
b.
–1.25
c.
–1.0
d.
–2.5
e.
–0.5
44. The formula for the point price elasticity can be written as:
a.
b.
c.
d.
e.
none of the above
45. Total revenue is rising with increases in output whenever:
a.
output increases
b.
marginal revenue is positive
c.
average revenue is positive
d.
demand is inelastic
e.
average revenue is negative
46. A profit-maximizing firm sets its price:
a.
to maximize sales
b.
where demand is elastic
c.
to equate average revenue and average cost
d.
at the highest level possible
e.
where marginal profit is maximized
47. A good whose demand curve shifts to the left as income increases is a(n):
a.
normal good
b.
substitute good
c.
inferior good
d.
inelastic good
e.
abnormality good
48. The formula for the income elasticity of demand can be written as:
a.
b.
c.
d.
e.
none of the above
49. The income elasticity of demand is defined as the:
a.
percentage change in the quantity demanded divided by the percentage change in
the price level
b.
change in the quantity demanded divided by the change in per capita income
c.
percentage change in income divided by the percentage change in the quantity
demanded
d.
change in per capita income divided by the change in the quantity demanded
e.
percentage change in the quantity demanded divided by the percentage change in
per capita income
50. The demand for answering machines is Q = 1,000 – 150P + 25I. Assume that per capita
disposable income I is $200. When the price of answering machines is P = $10, the income
elasticity of demand is:
a.
2.5
b.
0.11
c.
1.0
d.
25
e.
1.11
51. The demand for cable television hookups is Q = 100 – 10P1/2 + 2I–1, where P is price and I
is per capita income. Cable TV is a(n):
a.
normal good
b.
natural monopoly
c.
inferior good
d.
substitute good
e.
complement good
52. In Russia, as per capita income rises from $1,980 to $2,020, everything else remaining
constant, annual per capita consumption of vodka falls from 525 to 475 liters; this implies
an income elasticity of demand for vodka of:
a.
–0.50
b.
–5.0
c.
2.0
d.
5.0
e.
0.50
53. In 1965, as per capita income among a particular segment of the population fell from
$10,200 to $9,800, everything else remaining constant, annual per capita consumption of
beer fell from 55 to 45 gallons; this implied an income elasticity of demand for beer of:
a.
4.44
b.
4.55
c.
5.0
d.
4.65
e.
0.5
54. The formula for the cross-price elasticity of demand can be written as:
a.
b.
c.
d.
e.
none of the above
55. The cross-price elasticity of demand is defined as the:
a.
percentage change in the quantity demanded of a good divided by the percentage
change in the good’s price
b.
percentage change in the quantity demanded of a good divided by the percentage
change in a different good’s price
c.
percentage change in a good’s price divided by the percentage change in a
different good’s price
d.
change in the quantity demanded of a good divided by the change in its price
e.
change in the quantity demanded of a good divided by the change in income
56. The demand for fax machines has been estimated to be Q = 1,000 – P + 40L, where P is the
price of the machines and L is the average cost of a 10-minute midday call from Los
Angeles to New York. At a fax machine price of $400 and a phone call cost of $10, the
cross-price elasticity of demand for fax machines with respect to the price of phone service
is:
a.
0.4
b.
2.5
c.
–0.25
d.
4.0
e.
4.25
57. Makers of disposable diapers must advertise 5 percent more to offset completely the 2
percent decline in sales due to heightened environmental concern. The advertising elasticity
of demand is:
a.
4.0
b.
0.4
c.
2.5
d.
0.25
e.
0.20
58. El Niño wind patterns affected the weather across the United States during the winter of
1997–98. Suppose the demand for home heating oil in Connecticut is given by Q = 20 –
2Phho + 0.5Png – TEMP, where Q is the quantity of home heating oil demanded, Phho is the
price of home heating oil per unit, Png is the price of natural gas per unit, and TEMP is the
absolute difference between the average winter temperature over the past 10 years and the
current average winter temperature. If the current price of home heating oil is $1.20, the
current price of natural gas is $2.00, and the average winter temperature this year is 40
degrees compared to 28 degrees over the past 10 years, the quantity of home heating oil
demanded is:
a.
6.6 gallons
b.
16.6 gallons
c.
35.4 gallons
d.
20 gallons
e.
none of the above
59. El Niño wind patterns affected the weather across the United States during the winter of
1997–98. Suppose the demand for home heating oil in Connecticut is given by Q = 20 –
2Phho + 0.5Png – TEMP, where Q is the quantity of home heating oil demanded, Phho is the
price of home heating oil per unit, Png is the price of natural gas per unit, and TEMP is the
absolute difference between the average winter temperature over the past 10 years and the
current average winter temperature. If the current price of home heating oil is $1.20, the
current price of natural gas is $2.00, and the average winter temperature this year is 40
degrees compared to 28 degrees over the past 10 years, the TEMP variable tells us that:
a.
each 1-degree increase in temperature over the normal average raises home heating
oil sales by 1 unit
b.
each 1-degree increase in temperature over the normal average lowers home
heating oil sales by 1 unit
c.
the average daily temperature has no impact on the sales of home heating oil
d.
the average daily temperature has an impact only on the sales of natural gas
e.
price elasticity of demand for home heating oil is 2
60. El Niño wind patterns affected the weather across the United States during the winter of
1997–98. Suppose the demand for home heating oil in Connecticut is given by Q = 20 –
2Phho + 0.5Png – TEMP, where Q is the quantity of home heating oil demanded, Phho is the
price of home heating oil per unit, Png is the price of natural gas per unit, and TEMP is the
absolute difference between the average winter temperature over the past 10 years and the
current average winter temperature. If the current price of home heating oil is $1.20, the
current price of natural gas is $2.00, and the average winter temperature this year is 40
degrees compared to 28 degrees over the past 10 years, the price elasticity of demand for
home heating oil is:
a.
–0.09
b.
–0.36
c.
–1.2
d.
–2
e.
none of the above
61. El Niño wind patterns affected the weather across the United States during the winter of
1997–98. Suppose the demand for home heating oil in Connecticut is given by Q = 20 –
2Phho + 0.5Png – TEMP, where Q is the quantity of home heating oil demanded, Phho is the
price of home heating oil per unit, Png is the price of natural gas per unit, and TEMP is the
absolute difference between the average winter temperature over the past 10 years and the
current average winter temperature. If the current price of home heating oil is $1.20, the
current price of natural gas is $2.00, and the average winter temperature this year is 40
degrees compared to 28 degrees over the past 10 years, if the sellers of home heating oil are
profit maximizers, they should:
a.
lower prices
b.
raise prices
c.
advertise more
d.
advertise less
e.
none of the above