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price elasticity of demand of accounting profits

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1). Use the attached diagram to answer the next question. Between the prices of $10 and $8, the price elasticity of demand is:
A) 0.5
B) 0.9
C) 1.11
D) 2.0

2). Suppose that a business incurred implicit costs of $300,000 and explicit costs of $1,300,000 over the past year. If the firm earned $1,400,000 in revenue, its:
A) accounting profits were $400,000 and its economic profits were $100,000
B) accounting losses were $200,000 and its economic profits were $100,000
C) accounting profits were $100,000 and its economic profits were zero
D) accounting profits were $100,000 and its economic losses were $200,000

3). The WXY Corporation has fixed costs of $50. Its total variable costs (TVC) vary with output as shown in the attached table.

Refer to the table. The average total cost of 4 units of output is:
A) $27.50
B) $40.00
C) $52.50
D) $210.00

4). The attached diagram shows the short-run average total cost curves for five different plant sizes for a firm. The firm experiences economies of scale over the range of plant sizes:
A) 1 through 2 only
B) 1 through 3 only
C) 1 through 5
D) 3 through 5 only

5). Refer to the table attached. Suppose the firm's goal is maximum profits (or minimum losses.) If this firm's minimum average variable cost is $23, the firm will produce:

A) 0 units
B) 2 units
C) 3 units
D) 4 units

6). Use the attached diagram to answer the next question.
Refer to the diagrams, which pertain to a purely competitive firm and the industry in which it operates. The firm will produce q units and incur an economic loss.

A) True
B) False

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Dear Student,

Thank you for using BM.
Below are my answers.

ANSWERS

1. B
[(22-18)/18]/[(8-10)/10] = -0.89
Absolute value ...

Solution Summary

The price elasticity of demand is featured.

$2.19
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Price elasticity of demad, determinants of elasticity

#1: (Categories of Price Elasticity of Demand) for each of the following absolute values of price elasticity of demand, indicate whether demand is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic. In addition, determine what would happen to total revenue if a firm raised its price in each elasticity range identified.
a. ED = 2.5
b. ED = 1.0
c. ED = 8
d. ED = 0.8

#4: (Determinants of Price Elasticity) Why is the price elasticity of demand for Coca-Cola greater than the price elasticity of demand for soft drinks generally?

#3: (Alternative Measures of Profit) Calculate the accounting profit or loss as well as the economic profit or loss in each of the following situations:
a. A firm with total revenues of $150 million, explicit cost of $90 million, and implicit costs of $30 million

b. A firm with total revenue of $125 million, explicit costs of $100 million, and implicit costs of $30 million

c. A firm with total revenue of $100 million, explicit costs of $90 million, and implicit cost of $20 million

d. A firm with total revenues of $250,000, explicit costs of $275,000, and implicit costs of $50,000

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