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Question
A supplier of fur coats estimates that the price elasticity of demand for its coats is -3.75. The firm has determined that an additional $100,000 in advertising would generate $275,000 in additional revenues. You would advise the firm to:a. advertise, since the marginal revenues are greater than the cost of advertising
b. spend only $50,000 on advertising, since the marginal revenue from an additional dollar of advertising is less than $3.75
c. abandon the advertising plan, since the demand elasticity is greater than 1 (in absolute value)
d. abandon the advertising plan, since the marginal revenue from an additional dollar of advertising is less than $3.75
e. advertise, since the fur coats are a luxury item
Answer
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Related questions
Q:
The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 12 - 15Q during peak traffic periods and P = 9 - 1Q during off-peak hours, where Q is the number of cars crossing the bridge in thousands and P is the toll in dollars. If the marginal congestion cost of using the bridge is MC = 5 + 0.2Q, what is the optimal off-peak load toll for crossing the bridge?
a. 6.5
b. 8.0
c. 8.7
d. 9.9
e. 10.6
Q:
Xenophobic Car Palace (XCP) purchases late-model domestic automobiles at wholesale auctions and sells them in Charleston and Savannah. XCP's total cost is given by TC = 100(QC + QS) + (QC + QS)2. The demand in each city for such gems is given by QC = 1,000 - 2PC and QS = 500 - PS. If XCP price discriminates between the two cities, how many cars will it sell in Charleston and Savannah?
a. QC = 100, QS = 50
b. QC = 50, QS = 100
c. QC = 75, QS = 75
d. QC = 100, QS = 100
e. QC = 50, QS = 50
Q:
When Exxoff Oil Corporation offers discounts based on credit card records of gas quantities purchased, they are practicing:
a. first-degree price discrimination
b. second-degree price discrimination
c. third-degree price discrimination
d. markup pricing
e. tying
Q:
When Pan United Airlines gives a $400 fare discount to persons with student IDs, they are practicing:
a. first-degree price discrimination
b. second-degree price discrimination
c. third-degree price discrimination
d. markup pricing
e. tying
Q:
If the monopolist shown in the diagram could practice first-degree price discrimination, consumer surplus would be:
a. $0
b. $225
c. $450
d. $900
e. $1,200
Q:
Consider Fred, who is employed by a national tire store and who earns a commission selling tires. He earns 25 percent of his gross sales revenue as a bonus. Fred's objective is to maximize:
a. total profits for the store
b. total revenues for the store
c. marginal revenue from sales
d. the difference between marginal revenues and marginal cost for the store
e. the number of customers he waits on per day
Q:
If a firm in a monopolistically competitive industry is profit maximizing, it should choose its level of advertising such that the marginal revenue of an additional dollar of advertising:
a. is equal to the elasticity of its demand curve minus 1
b. is exactly $1
c. increases revenues by $1
d. is equal to 1 plus the elasticity of its demand curve
e. is equal to the elasticity of its demand curve
Q:
So long as price exceeds average variable cost, in the model of monopolistic competition, a firm maximizes profits by producing where:
a. the difference between marginal revenue and marginal cost is maximized
b. marginal cost equals marginal revenue
c. marginal revenue equals price
d. the difference between price and marginal cost is maximized
e. price equals marginal cost
Q:
For a producer of joint products X and Y with total costs CX and CY, an isocost curve:
a. isolates CX and CY separately
b. shows points where CX = CY
c. shows points where cost curves are tangent
d. shows points where CX/CY is constant
e. shows points where CX + CY is constant
Q:
If revenues from selling quantities x and y of jointly produced goods X and Y were TRX= 100 - xy + 2x and TRY= 500 - xy + 3y, then marginal revenue with respect to X would be:
a. -2 - y
b. -y
c. -x(2y + 5)
d. -(2y + 5)
e. 2(1 - y)
Q:
A producer refuses to sell some of one joint product. MRA is the marginal revenue for a low-demand good. If the producer were to sell all its production, what would be true of MRA?
a. MRA = demand for A
b. MRA = 0
c. MRA = marginal cost of A
d. MRA < 0
e. MRA = 1
Q:
When producing 10 units, Jean has total variable costs of $100, total fixed costs of $100, and assets of $100. She wants a return of 10 percent. What price should she charge?
a. $11
b. $21
c. $30
d. $210
e. $300
Q:
If a monopolist faces a constant-elasticity demand curve given by Q = 400P-2 and has total costs given by TC = 625Q2, its profit-maximizing level of output is:
a. 0
b. 2
c. 4
d. 6
e. 8
Q:
Cal's Cab Company (CCC) has a taxi monopoly in Wen Kroy. The demand for taxi services in Wen Kroy is given by Q = 1,500 - P. CCC's costs are given by TC = 100 - Q2 + 5Q3. Its maximum monopoly profit is:
a. $0
b. $5,500
c. $6,600
d. $7,700
e. $9,900
Q:
My Big Banana (MBB) has a monopoly in Middletown on large banana splits. The demand for this delicacy is given by Q = 80 - P. MBB's costs are given by TC = 40 + 2Q + 2Q2. Its maximum monopoly profit is:
a. $267
b. $467
c. $627
d. $672
e. $674
Q:
In the model of monopoly, there:
a. are many firms producing differentiated products
b. are a few firms producing undifferentiated products
c. are a few firms producing differentiated products
d. are many firms producing undifferentiated products
e. is one firm producing a highly differentiated product
Q:
If a representative firm with long-run total cost given by TC = 50 + 2q + 2q2 operates in a competitive industry where the market demand is given by QD = 1,410 - 40P, in the long-run equilibrium there will be:
a. 60 firms
b. 98 firms
c. 106 firms
d. 110 firms
e. 120 firms
Q:
A representative firm with short-run total cost given by TC = 50 + 2q + 2q2 operates in a competitive industry where the short-run market demand and supply curves are given by QD = 1,410 - 40P and QS = -390 + 20P. Its short-run profit-maximizing level of output is:
a. 0 units
b. 1 unit
c. 2 units
d. 5 units
e. 7 units
Q:
A representative firm with long-run total cost given by TC = 20 + 20q + 5q2 operates in a competitive industry where the short-run market demand and supply curves are given by QD = 1,400 - 40P and QS = - 400 + 20P. If it continues to operate in the long run, its profit-maximizing level of output is:
a. 1 unit
b. 2 units
c. 4 units
d. 5 units
e. 6 units
Q:
If the perfectly competitive market demand for tanning beds shifts from QD,91 = 1,230 - 5P to QD,92 = 740 - 5P and the market supply is given by QS -100 + 2P, then the change in equilibrium quantity will be:
a. 140 units
b. 280 units
c. -98 units
d. -140 units
e. -150 units
Q:
In the model of perfect competition, firms produce a:
a. standardized product with considerable control over price
b. differentiated product with considerable control over price
c. standardized product with no control over price
d. differentiated product with no control over price
e. standardized or differentiated product with some control over price
Q:
Whenever average variable cost is declining with increases in output:
a. marginal cost is always declining as average total cost declines
b. average total cost at first decreases and then increases with output
c. marginal cost is always declining as average total cost increases
d. marginal cost at first decreases and then increases with output
e. marginal cost at first increases and then decreases with output
Q:
Where long-run average cost equals short-run average cost:
a. short-run average cost is minimized
b. long-run average variable cost equals short-run average variable cost
c. long-run average cost equals long-run marginal cost
d. long-run average cost is minimized
e. long-run marginal cost equals short-run marginal cost
Q:
The addition to total cost resulting from the addition of the last unit of output is known as:
a. marginal product
b. average product
c. average variable cost
d. average total cost
e. marginal cost
Q:
If average variable cost is increasing with increases in output, total fixed cost will:
a. increase with increases in output
b. decrease with increases in output
c. remain unchanged with increases in output
d. increase initially and then decrease with increases in output
e. decrease initially and then increase with increases in output
Q:
An example of implicit costs is the:
a. bad-debt liabilities arising out of excessive sales on credit
b. wages paid to the owners' children
c. opportunity cost of owner-supplied capital and labor that is not recognized by accountants
d. prices paid for purchased inputs
e. the alternative uses for money that could be borrowed
Q:
Marginal product is increasing:
a. between O and A
b. between A and B
c. between B and C
d. between C and D
e. beyond point D
Q:
The equation for the marginal cost function represented in the diagram is:
a. MC = 100
b. MC = 10Q
c. MC = 10Q2
d. MC = 100Q
e. MC = 100 + 5Q2
Q:
If total cost is given by TC = a + bQ - cQ2 + dQ3, then marginal cost is minimized at __________ units of output.
a. Q* = a/2d
b. Q* = b/2d
c. Q* = c/2d
d. Q* = b/3d
e. Q* = c/3d
Q:
Why Can"t We Be Friends? operates a conflict settlement service for distressed couples. If it has no fixed costs and its monthly average variable cost of cases is given by AVC = 2.5Q + 500, the marginal cost at a caseload of 50 attempted reconciliations per month is:
a. $500
b. $550
c. $600
d. $625
e. $750