Question 1

A company that supplies water to a city faces a market demand curve of P = 240 - 3q.At what quantity does the company maximize total revenue?
A)q = 20
B)q = 40
C)q = 60
D)q = 80
E)None of the above

Accepted Answer

Total revenue (TR) is maximized where marginal revenue (MR) equals zero. The demand curve is P = 240 - 3q, so TR = P*q = (240 - 3q)q. Differentiating TR with respect to q gives MR = 240 - 6q. Setting MR = 0 for maximization, 240 - 6q = 0, solving for q gives q = 40.

Question 2

Consider a market with a demand curve of P = 150 - q and a supply curve of P = 2q.What is the price elasticity of demand at the market equilibrium?
A)-1/2
B)-1
C)-3/2
D)-2
E)None of the above

Accepted Answer

D

Question 3

Which statement is true?
A)The cross-price elasticity of demand for two substitute products is zero.
B)The cross-price elasticity of demand for two substitute products is negative.
C)The cross-price elasticity of demand for two substitute products is positive.
D)Either a or B

Accepted Answer

The cross-price elasticity of demand for two substitute products is positive because as the price of one product increases, the demand for its substitute is likely to increase as well.

Question 4

Consider a market with a demand curve of P = 150 - q and a supply curve of P = 2q.What is the price elasticity of supply at the market equilibrium?
A)1/2
B)1
C)3/2
D)2
E)None of the above

Accepted Answer

At equilibrium, set demand equal to supply: 150 - q = 2q, solving gives q = 50. Substitute q = 50 into either equation to find P = 100. The price elasticity of supply is (dQ/dP) * (P/Q). From the supply curve P = 2q, dQ/dP = 1/2. At equilibrium, P = 100 and Q = 50, so elasticity = (1/2) * (100/50) = 1.

Question 5

A company that supplies water to a city faces a market demand curve of P = 150 - 2q.At what price does the company maximize total revenue?
A)P = 75
B)P = 150
C)P = 50
D)P = 100
E)None of the above.

Accepted Answer

Total revenue (TR) is maximized where marginal revenue (MR) equals zero. The demand curve is P = 150 - 2q, so the total revenue TR = P*q = (150 - 2q)q. Differentiating TR with respect to q gives MR = 150 - 4q. Setting MR = 0 for maximization, 150 - 4q = 0, solving for q gives q = 37.5. Substituting q back into the demand equation, P = 150 - 2*37.5 = 75.

Question 6

If the quantity supplied increases from 100 to 150 if the price rises from 5 to 10, what is the price elasticity of supply according to the arc (or midpoint) method?
A)1/5
B)2/5
C)3/5
D)1
E)None of the above

Accepted Answer

The answer of If the quantity supplied increases from 100...

Question 7

If an increase in income by 15 per cent results in a 45 per cent increase in the quantity demanded, what is the income elastic of the good?
A)3/2
B)3
C)1/2
D)1/3
E)None of the above

Accepted Answer

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it is 45% / 15% = 3.

Question 8

Which statement is true?
A)The price elasticity of demand is constant along a straight-line demand curve.
B)The price elasticity of demand varies along a straight-line demand curve.
C)Given slope is constant, the price elasticity of demand is constant along a straight-line demand curve.
D)a and c
E)None of the above.

Accepted Answer

The price elasticity of demand varies along a straight-line demand curve because it is calculated as the percentage change in quantity demanded divided by the percentage change in price, and these percentages change at different points along a straight-line demand curve.

Question 9

The quantity demanded increases from 20 to 30 units as the price falls from 50 to 40.What is the price elasticity of demand using the arc (or midpoint) method?
A)-1/5
B)-9
C)-1/2
D)-9/5
E)None

Accepted Answer

The arc elasticity of demand is calculated using the formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(30 - 20) / (30 + 20) / 2] / [(40 - 50) / (40 + 50) / 2] = (10 / 25) / (-10 / 45) = 0.4 / -0.222 = -9/5.

Question 10

What is the price elasticity of supply if the supply curve is given by P = 2q?
A)1
B)2
C)3
D)4
E)None of the above

Accepted Answer

The price elasticity of supply is calculated as (dq/dP) * (P/q). For P = 2q, dq/dP = 1/2. Substituting P = 2q into the elasticity formula gives (1/2) * (2q/q) = 1.

Quiz 10: Elasticity

A company that supplies water to a city faces a market demand curve of P = 240 - 3q.At what quantity does the company maximize total revenue?

Consider a market with a demand curve of P = 150 - q and a supply curve of P = 2q.What is the price elasticity of demand at the market equilibrium?

Which statement is true?

Consider a market with a demand curve of P = 150 - q and a supply curve of P = 2q.What is the price elasticity of supply at the market equilibrium?

A company that supplies water to a city faces a market demand curve of P = 150 - 2q.At what price does the company maximize total revenue?

If the quantity supplied increases from 100 to 150 if the price rises from 5 to 10, what is the price elasticity of supply according to the arc (or midpoint) method?

If an increase in income by 15 per cent results in a 45 per cent increase in the quantity demanded, what is the income elastic of the good?

Which statement is true?

The quantity demanded increases from 20 to 30 units as the price falls from 50 to 40.What is the price elasticity of demand using the arc (or midpoint) method?

What is the price elasticity of supply if the supply curve is given by P = 2q?