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The price elasticity of demand

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Please give a short explaination of why the problem is true or false.

a. A firm maximizes its profit at the break even point. Break even point is the point where marginal revenue equals zero. True or false, explain.

b. Firms advertise in order to change price elasticity of demand for their products. However, the higher elasticity would mean a decrease in the marginal revenues. True or false, explain.

c. Demand estimation is made difficult by the fact that customer self-interest often militates against accuracy of demand information gained through consumer interviews. True or false, explain.

d. Production function specifies the maximum output that can be produced given varying degrees of technological progress. True or false, explain.

e. When a firm operates at increasing returns to scale, long run average cost is increasing. True or false, explain.

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a. A firm maximizes its profit at the break even point. Break even point is the point where marginal revenue equals zero. True or false, explain.

Answer: False
Because a firm maximizes profits at the output level where marginal revenue (MR) equals marginal cost (MC). Break even point is the point where the firm generates zero profit.

b. Firms advertise in order to change price elasticity of demand for their products. However, the higher elasticity would mean a decrease in the marginal revenues. ...

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Umut Oltulu, MBA
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  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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