1.When demand is elastic, marginal revenue will be: a)positive. b)negative. c) z

Question

1.When demand is elastic, marginal revenue will be: a)positive. b)negative. c) zero. d)There is not sufficient information to determine the marginal revenue.

2. If the cross-price elasticity between ketchup and hamburgers is 1.5, a 2 percent decrease in the price of ketchup will lead to a: a)3 percent increase in quantity demanded of ketchup. b)3 percent decrease in quantity demanded of ketchup. c)3 percent increase in quantity demanded of hamburgers. d) 3 percent decrease in quantity demanded of hamburgers.

Explanation / Answer

1. THERE IS NOT SUFFICIENT INFORMATION TO DETERMINE THE MARGINAL REVENUE.

2. CROSS PRICE ELASTICITY

= %AGE CHANGE IN DEMAND OF GOOD B / % AGE CHANGE IN PRICE OF GOOD A

-1.5 = A / 2

-1.5 * 2 = A

A = -3%

IT WILL RESULT IN 3 PERCENT DECREASE IN QUANTITY DEMANDED OF HAMBURGERS.

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