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price-elastic demand curve

Soft Drink Bottling Data

Total Product Labor Capital
245 250 30
240 270 34
300 300 44
320 320 50
390 350 70
440 400 76
520 440 84
520 440 86
580 450 104
600 460 110
600 460 116

log(TP) log(L) log(K)
2.389166084 2.397940009 1.477121255
2.380211242 2.431363764 1.531478917
2.477121255 2.477121255 1.643452676
2.505149978 2.505149978 1.698970004
2.591064607 2.544068044 1.84509804
2.643452676 2.602059991 1.880813592
2.716003344 2.643452676 1.924279286
2.716003344 2.643452676 1.934498451
2.763427994 2.653212514 2.017033339
2.77815125 2.662757832 2.041392685
2.77815125 2.662757832 2.064457989

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1. If a company faces a price-elastic demand curve, it can increase the revenue by decreasing the price. (Points: 5)
True
False
Answer: True, when the demand is in price elastic range, the decrease in price is more than compensated by the increase in demand and hence the total revenues are higher.

2. F-test measures the statistical significance of each explanatory variable. (Points: 5)
True
False
Answer: False. F test measures the statistical significance of overall regression model. The significance of each explanatory variables is checked using t-test.

3. A lawyer whose annual income used to be $150,000 quit the job and opened a restaurant. The total cost of operating the restaurant business is $100,000, and the annual revenue is $250,000. What is the lawyer's economic cost of running the restaurant business? (Points: 5)
$100,000
$150,000
$250,000
$300,000
$50,000
Answer:
Economic cost = Operating cost of restaurant + The opportunity cost of the Lawyers time
=100,000+150,000
=$250,000

4. Total revenue function is

TR = -Q(Q-10)
and total cost function is
TC = 2Q.
What is the profit-maximizing Q?
(Points: 5)
2
4
6
10
12
ANSWER:
At price maximizing Q, MC=MR
MR=dTR/dQ= -2Q+10
MC=dTC/dQ=2
So we have
-2Q+10=2
Solving we get Q=4

5. What was NOT the effect of the "voluntary export restraint" on Japanese cars in 1981? (Points: 5)
Answer: Japan started to export high-end automobiles to U.S.
Domestic car prices jumped up.
U.S. consumers had to pay more to purchase cars.
Japanese auto manufacturers suffered a significant decrease in revenue.
US car auto manufacturers enjoyed higher profits.

6. Click demand data and using the data, estimate the following regression equation:
P = 14254 - ( ) Q
Note: Be careful. The equation shows that the independent variable is Q and the dependent variable is P.
Note: Do not round the estimate. Just write the whole number. Be careful with the sign.
(Points: 10)
The answer is 125.63
See the regression output if required.

SUMMARY ...

Solution Summary

Examine price-elastic demand curve.

$2.19