Question 1

Suppose a pizza shop decreases the price of its pizzas from $$25 to 20$$, and as a result, the quantity sold increases from 0 to 10 pizzas per hour. What does this indicate about the price elasticity of demand in this price range?

Accepted Answer

Demand is elastic because total revenue increases.

Question 2

If the price of a good falls by 1% and the quantity demanded rises by exactly 1%, what is the price elasticity of demand?

Accepted Answer

Unit elastic

Question 3

Given the total revenue formula $$TR = P 	imes Q$$, if a firm observes that lowering the price increases total revenue, what can be inferred about the demand for its product?

Accepted Answer

Demand is elastic.

Question 4

At what price is total revenue maximized according to Figure 4.5, and what does this imply about the elasticity of demand at that price?

Accepted Answer

At $12.50, demand is unit elastic.

Question 5

If a price cut does not change total revenue, what is the price elasticity of demand?

Accepted Answer

Unit elastic

Question 6

A firm notices that when it reduces the price of its product, the percentage increase in quantity demanded is less than the percentage decrease in price. What is the effect on total revenue?

Accepted Answer

Total revenue decreases.

Question 7

Which of the following best describes the total revenue test for estimating price elasticity of demand?

Accepted Answer

Observing the change in total revenue from a change in price, holding all other influences constant.

Question 8

If the demand for pizzas is elastic in the price range from $$25 to 12.50$$, what happens to total revenue when the price decreases within this range?

Accepted Answer

Total revenue increases.

Question 9

Suppose the price of a good is reduced and total revenue falls. Which of the following must be true?

Accepted Answer

Demand is inelastic.

Question 10

If a pizza shop sells 50 pizzas per hour at a price of $0, what is its total revenue?

Accepted Answer

$0

Question 11

Which of the following scenarios would indicate that demand is inelastic?

Accepted Answer

A price cut decreases total revenue.

Question 12

If the price elasticity of demand is greater than 1, what happens to total revenue when price decreases?

Accepted Answer

Total revenue increases.

Question 13

A pizza shop observes that at a price of $25, it sells zero pizzas per hour. What is its total revenue at this price?

Accepted Answer

$0

Question 14

Which of the following statements is true about the relationship between elasticity and total revenue?

Accepted Answer

When demand is unit elastic, a price cut does not change total revenue.

Question 15

If a firm wants to maximize its total revenue, at what point should it set its price according to the total revenue curve?

Accepted Answer

Where demand is unit elastic.

Question 16

Which formula correctly represents total revenue?

Accepted Answer

$$TR = P 	imes Q$$

Question 17

If a price cut increases the quantity sold by less than 1 percent, what is the likely effect on total revenue?

Accepted Answer

Total revenue decreases.

Question 18

Which of the following is NOT a possible outcome when the price of a good changes?

Accepted Answer

Total revenue becomes negative.

Question 19

If a firm observes that total revenue remains unchanged after a price change, what is the elasticity of demand?

Accepted Answer

Unit elastic

Question 20

A pizza shop is considering lowering its price. To estimate the price elasticity of demand, which method should it use?

Accepted Answer

Total revenue test

Total Revenue and Elasticity

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