Question

A 5% increase in price leads to a 20% decrease in the quantity demanded of mittens. What is the price elasticity of demand?

4

.25

-4

-.25

A cigar factory employs 20 workers and produces 1,000 cigars a day. The company reduces the workforce to 19 workers and produces 912 cigars a day. The 20th worker?

must have had a lower marginal product than the 19th worker

had a marginal revenue of $88

caused average product to fall had a marginal product of 88 cigars

If you were told a firm has positive accounting profits and nothing else, what would you know about its economic profits?

It cannot be determined without knowing the firm’s implicit costs

It is zero because all firms earn zero economic profits regardless of the type of market

It is negative because its accounting is probably not high enough to earn positive economic profits.

It is positive because whenever accounting profit is positive, so is it economic profit.

Answer 1

Solution-

A 5% increase in price leads to a 20% decrease in the quantity demanded of mittens. What is the price elasticity of demand?

The correct option is C. -4

Reason-

Ed = % change in quantity demanded / % change in Price

= - 20 / 5

= -4

A cigar factory employs 20 workers and produces 1,000 cigars a day. The company reduces the workforce to 19 workers and produces 912 cigars a day. The 20th worker?

The correct option is D. had a marginal product of 88 cigars.

Reason-

MP = change in TP / Change in workers

= (912 - 1000) / (19 - 20)

= - 88 / - 1

= 88

If you were told a firm has positive accounting profits and nothing else, what would you know about its economic profits?

The correct option is B. It is zero because all firms earn zero economic profits regardless of the type of market.