# price-elastic demand curve

1. If a company faces a price-elastic demand curve, it can increase the revenue by decreasing the price. True

False

2. F-test measures the statistical significance of each explanatory variable. True

False

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?

$100,000

$150,000

$250,000

$300,000

$50,000

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

5. What was NOT the effect of the "voluntary export restraint" on Japanese cars in 1981?

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.

7. ( ) method is a popular method of qualitative forecasting. Developed at the Rand Corporation in the 1950s, it is utilized predominantly in predicting technological trends and changes. It uses a panel of experts and unlike the jury of executive opinion, the participants do not meet ot discuss and agree on a forecast.

8.

Month Sales 3-Month Moving Average of Sales

Jan 843

Feb 939

Mar 1236

Apr 876 1006

May ( )

Note: Do not round the number. Write the whole number.

9. What is time-series data. Give an example. What is cross-sectional data. Give an example.

10. What is the key difference in assumption between a short-run production function and a long-run production function?

11. Diminishing returns are short-run phenomena. Define the law of diminishing returns. In a well-defined cubic production function, in which stage does it kick in?

#### Solution Preview

Please see the attached file.

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. ...

#### Solution Summary

The expert assess a price-elastic demand curve.