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