Knowledge Check /Week 6 / ECO/561 ECO 561 ECO561

Knowledge Check /Week 6 / ECO/561 ECO 561 ECO561

1. If the demand curve is QD = 100 10P and there is a $1 price increase, then the elasticity of demand at P = 2 isA. -0.25B. -0.5C. -0.75D. -12. If the absolute value of a demand elasticity is less than 1, thenA. the demand is inelastic, and a price rise will reduce the total revenueB. the demand is inelastic, and a price rise will increase the total revenueC. the demand is elastic, and a price rise will reduce the total revenueD. the demand is elastic, and a price rise will increase the total revenue3. If the cross-price elasticity is negative, then the two goods areA. unrelatedB. substitutesC. complementsD. normal goods4. Under perfect competition, a firm maximizes its profit by settingA. P = MC because P = MRB. P above MC where MC = MRC. P = FC5. In a large city, a good, real-world example for perfect competition would beA. lawyersB. gas stationsC. Time Warner CableD. clothing stores6. A firm under monopolistic competition will earnA. positive economic profit because it has some monopoly powerB. zero economic profit because it sets P = MCC. zero economic profit because its P = ATCD. positive economic profit because it sets MC = MR


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