Question 1. Examine whether the following statement is true or false. Explain.
The own price elasticity of demand is constant if the slope of the demand curve is constant.
Question 2. Suppose you are working as a consultant for a perfectly competitive firm that is is worried about its policies in the short run. What would you recommend in terms of quantity changes (raise, cut, shut down or stay put) and price changes (raise, cut, stay put) in each of the following two situations:
a) P = $11, MC = $6, AVC = $7. b) [10 points] P = $9, MC = $4, AVC = $11.
Question 3. Suppose you are working as a consultant for a firm that is a monopoly and is worried about its policies in the short run. What would you recommend in terms of quantity changes (raise, cut, shut down or stay put) and price changes (raise, cut, stay put) in each of the following situations (a through c):
a. MR = $248 b. MR = $298 c.
P = $269
P = $268 MC = $348 MC = $319
MC = $198 AVC = $208 AVC = $288
AVC = $289