question archive 1)A firm facing a downward-sloping demand curve sells 50 units of output at $10 each
1)A firm facing a downward-sloping demand curve sells 50 units of output at $10 each
Subject:EconomicsPrice:2.88 Bought3
1)A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. The firm's average revenue is:
a. $10.
b. less than $10 but more than zero.
c. $500.
d. zero.
e.more than $10 but less than $500.
2)A producer knows that the price elasticity for his product is -0.5. He wants to increase quantity demanded by 30 percent. By what percentage does he need to change the price?
a. - 6 percent
b. 10 percent
c. - 9.5 percent
d. - 60 percent
e. 6 percent
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1)The correct option is a. $10.
Here, we do not have to perform any calculations. The average revenue will be equal to the price because each unit is being sold at this price.
2)The answer is d).
The percentage change in income is such that:
- percentage change in quantity demanded = percentage change in price * price elasticity
- 30% = (-0.5) * percentage change in price
- percentage change in rice = -60%
That is, price must fall by 60%.
