# ECO/561 Week 6 Knwoledge Check (100%) - 65370

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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. -0.5
• C. -0.75
• D. -1

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

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ECO/561 Week 6

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