conibue to raise price until profits become positive each firm produces an ident
ID: 1127704 • Letter: C
Question
conibue to raise price until profits become positive each firm produces an identical good in the market. D) each firm produces a level of output at which price exceeds marginal cost. 6. If a 10% increase in the price of pork reduces quantity demanded by 79 the price elasticity of demand is: A) -1.43 B)-0.14 -3.0 )-0.70 7. An increase in the price of computer chips causes a decrease in the total sales by computer chip manufacturers. The price elasticity of demand for computer chips is: A) positive and elastic. inelastic. Cy elastic. D) positive and inelastic.Explanation / Answer
Answer 6 - Price of pork increases by 10% and leads to decrease in quantity by 7%. Price elasticity of demand is ratio of percentage change in quantity demanded and percentage change in price.
Price elasticity of demand (PED) = % change in quantity demanded / % change in price of good
PED = 7 / 10
PED = 0.7
Since, quantity moves in opposite direction always thus PED will be negative. It will be -0.7.
Option D is the correct answer.
Answer 7 - An increase in the price of computer chips causes decrease in the total sale. Total sale represents total revenue. Total sale is equal to price time quantity.
Total sale = P* Q
If price increase reduces total sale then quantity demanded must be changed in greater proportion than price change. Theoretically, it is known that, if increase in price causes decrease in the total sale then demand must be elastic.
Option C is the correct answer.
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