Questions:
1. If the demand curve is QD = 100 - 10P and there is a $1 price increase, then the elasticity of demand at P = 2 is
A. -0.25
B. -0.75
C. -0.50
D. -0.30
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