1. A company currently sells 60,000 units a
month at $10 per unit. The marginal cost per unit is...

Question

1. A company currently sells 60,000 units a 
month at $10 per unit. The marginal cost per unit is $6. The company is 
considering raising the price by 10% to $11. If the price elasticity of 
demand is _______________ in that price range, then profit would 
increase if the company decided to raise the price by 10%.a. Equal to –3b. Greater than +1c. Less than –3.5d. Greater than –22. The price elasticity of demand for bread is –0.5. If the price falls by 5%, the quantity demanded will change by:a. –2 .5%b. +2.5%c. –1.0%d. +10%3. Actions a firm can take to change a product’s demand curve include:a. Reducing the price of a substitute product the firm also produces.b. Reducing the price of a complementary product the firm also produces.c. Differentiating its product from competitors by offering an extended warrantee.d. All of the above will change a product’s demand curve.4. A product can be classified as a normal good if an increase in the income of buyers causes:a. A decrease in quantity demanded.b. A decrease in demand.c. An increase in demand.d. An increase in quantity demanded.5. Assume that beer and pretzels are complements in consumption; if the price of beer increases, we would expect to see:a. An increase in the demand for pretzels.b. A decrease in the demand for pretzels.c. An increase in the quantity of pretzels demanded.d. A decrease in the quantity of potatoes demanded.

Robert · Accepted Answer

1. A company currently sells 60,000 units a month at $10 per unit. The marginal cost per unit is $6. The company is considering raising the price by 10% to $11. If the price elasticity of demand is _______________ in that price range, then profit would increase if the company decided to raise the price by 10%.
a. Equal to –3
b. Greater than +1
c. Less than –3.5
d. Greater than –2
mR= P( 1+1/e) 
P= 11
MC= 6
At new price MR > MC  so that 6> 11( 1+1/e)
Solve this to get e > - 11/5= -2.2
2.

1. A company currently sells 60,000 units a month at $10 per unit. The marginal cost per unit is $6. The company is considering raising the price by 10% to $11. If the price elasticity of demand is...

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