ECO 561 Week 6 Quiz (Perfect Answer)

1. If the demand curve is QD = 100 â 10P and there is a $1 price increase, then the elasticity of demand at P = 2 is

A. -0.25

B. -0.5

C. -0.75

D. -1

2. If the absolute value of a demand elasticity is less than 1, then

A. the demand is inelastic, and a price rise will reduce the total revenue

B. the demand is inelastic, and a price rise will increase the total revenue

C. the demand is elastic, and a price rise will reduce the total revenue

D. the demand is elastic, and a price rise will increase the total revenue

3. If the cross-price elasticity is negative, then the two goods are

A. unrelated

B. substitutes

C. complements

D. normal goods

4. Under perfect competition, a firm maximizes its profit by setting

A. P = MC because P = MR

B. P above MC where MC = MR

C. P = FC

5. In a large city, a good, real-world example for perfect competition would be

A. lawyers

B. gas stations

C. Time Warner Cable

D. clothing stores

6. A firm under monopolistic competition will earn

A. positive economic profit because it has some monopoly power

B. zero economic profit because it sets P = MC

C. zero economic profit because its P = ATC

D. positive economic profit because it sets MC = MR

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