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