Suppose that if a local McDonald's restaurant reduces the price of a Big Mac from $4.00 to $3.25, the number of Big Macs it sells per day will increase from 4 to 5. Explain the output effect and the price effect resulting from this change
Using a graph, illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac. What is the total change in revenue received which results from this price decrease?
The 1 extra Big Mac sold is the output effect. The $0.75 cents less it receives for each Big Mac sold at the lower price is the price effect. The total change in revenue resulting from the price decrease is $3.25 - $3.00 = $0.25.
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Which of the following is not an advantage of modern corporations?
a. Limited liability b. Longevity and permanence c. More likely to earn higher profits d. Ease of attracting investors
The consumption function assumes that:
a. only disposable income affects consumption b. only the price level affects consumption. c. many factors other than disposable income affect consumption, and each is allowed to vary along the consumption function. d. factors other than disposable income affect consumption, but those are held constant along the consumption function. e. only consumer expectations affect consumption.