ECO 561 WEEK 6 KNOWLEDGE CHECK (SOLUTION 6/6) - 75766

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1. If the demand curve is QD = 100 – 10P and there is a $1 price increase, then the elasticity of demand at P = 2 is A. -0.25 B. -0.75 C. -0.50 D. -0.30 2. If the absolute value of a demand elasticity is less than 1, then A. the demand is inelastic, and a price rise will reduce the total revenue B. the demand is inelastic, and a price rise will increase the total revenue C. the demand is elastic, and a price rise will reduce the total revenue D. the demand is elastic, and a price rise will increase the total revenue 3. If the cross-price elasticity is negative, then the two goods are A. unrelated B. substitutes C. complements D. normal goods 4. Under perfect competition, a firm maximizes its profit by setting A. P = MC because P = MR. B. P above MC where MC = MR. C. P = FC. 5. In a large city, a good, real-world example for perfect competition would be A. lawyers B. gas stations C. Time Warner Cable D. clothing stores 6. A firm under monopolistic competition will earn A. positive economic profit because it has some monopoly power B. zero economic profit because it sets P = MC C. zero economic profit because its P = ATC D. positive economic profit because it sets MC = MR
Solution Description

1. If the demand curve is QD = 100 – 10P and there is a $1 price increase, then the elasticity of demand at P = 2 is

A. -0.25

B. -0.75

C. -0.50

D. -0.30

2. If the absolute value of a demand elasticity is less than 1, then

A. the demand

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