Question

1. Given 2 demand curves: Demand curve A is flatter than Demand curve B. Both curves intersect the same point of price =$12 and Quantity = 2,000.

Price increases to $15. Which demand curve will either have

higher revenue or lower loss?

Demand curve A |

Demand curve B |

both will experience the same amount of revenue loss |

both will experience the same amount of revenue gain |

2. Assume a doctor earned $200,000 last year. If research showed that doctor's skills, talent, and experience account for only 80% of the salary then the rest would be attributed to ___________.

IRR |

monopoly rent |

elastic demand |

none of the above |

3. Given 2 demand curves: Demand curve A is flatter than Demand curve B. Both curves intersect the same point of price =$12 and Quantity = 2,000.

Price decreases to **$7.** Which demand curve will
either have

higher revenue or smaller loss?

Demand curve A |

Demand curve B |

both will experience an increase in revenue in the same amount |

both will experience a decrease in revenue in the same amount |

not enough information to answer the question as we do not know the new quantities levels |

4. Part 1:

Given: r = $2,000 I_{H} = $6,000
E(I) = $5,000

What can we say so far about this policy?

fair policy |

unfair policy |

full |

partial |

none of the above |

Part 2: Now, assume:

I'_{S }< $4,000

What else can we now say about this policy?

full |

partial |

fair |

negative profits |

none of the above |

Answer #1

1. Demand curve A is flatter than Demand curve B means demand curve A is more elastic than demand curve B. In case of inelastic demand, when price increases even if by a higher amount, quantity demanded falls by a smaller amount and that causes an increase in the total revenue. In case of elastic demand, even if price increases by a small amount, quantity demanded decreases by a greater amount, and that causes reduction in total revenue. Therefore, in case of elastic demand, change in price and change in total revenue moves in the opposite direction and in case of inelastic demand, change in price and change in TR moves in the same direction.

Therefore, when price increases from $12 to $15, demand curve B, which is relatively inelastic, will have higher revenue.

Answer: option B

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