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Own price and cross-price elasticity of demand

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7. Consider a market characterized by the following inverse demand and supply functions: PX = 40 - 4QX and PX = 10 + 2QX. Compute the surplus received by consumers and producers.

$25 and $25, respectively.
$20 and $40, respectively.
$40 and $20, respectively.
$50 and $25, respectively.

8. Long-term contracts:

increase transaction costs and increase opportunism.
increase transaction costs.
can reduce opportunistic behavior.
reduce transaction costs and increase flexibility.

35. Rent seeking:

involves resources paid to politicians to enhance one group at the expense of another.
results in less monopoly power.
results in externalities.
None of the statements are correct.

38. You are the manager of a firm that receives revenues of $20,000 per year from product X and $70,000 per year from product Y. The own price elasticity of demand for product X is -2, and the cross-price elasticity of demand between product Y and X is -1.5.

How much will your firm's total revenues (revenues from both products) change if you increase the price of good X by 1 percent?

Instructions: Round your answer to the nearest dollar. Include a minus (-) sign if applicable.

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Solution Summary

This solution shows how to calculate the change in total revenue over two products, X and Y, when the price of X changes and the own price elasticity of X and the cross-price elasticity of Y are known.

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3. The Consumer Surplus and Producer Surplus are $50 and $25, respectively.

8. Long-term contracts can reduce opportunistic behavior.

35. Rent seeking involves resources paid to politicians to enhance one group at the expense of another.

38. The ...

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