What is TRUE of the price elasticity of demand faced by a monopoly firm?
A) Demand is inelastic.
B) Demand is more elastic at lower prices and more inelastic at higher prices.
C) Demand is perfectly elastic because the monopolist has no competition.
D) Demand becomes more elastic as the range of imperfect substitutes expands.
Answer: D
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If you spend a large portion of your income on a good,
A) supply of that good would be price elastic. B) demand for that good is more elastic than if you spent a smaller portion of your income on the good. C) supply of that good is price inelastic. D) demand for that good is less elastic than if you spent a smaller portion of your income on the good. E) the good must be able to be produced at a constant (or gently rising) opportunity cost.
Suppose duopolists face the market inverse demand curve P = 100 - Q, Q = q1 + q2, and both firms have a constant marginal cost of 10 and no fixed costs. If firm 1 is a Stackelberg leader and firm 2's best response function is q2 = (100 - q1)/2, at the Nash-Stackelberg equilibrium firm 1's profit is
A) 400. B) 650. C) 800. D) 1200.