ECO561 Week 6 Knowledge Check

1.  If the demand curve is QD = 100 at 10P and there is a $1 price increase, then the elasticity of demand at P = 2 is

A. -0.5

B. -0.25

C. -0.75

D. -1

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 increase the total revenue

D. the demand is elastic, and a price rise will reduce 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 it’s P = ATC

D. positive economic profit because it sets MC = MR