The president of the Micro Brewing Corporation asks you, as the company economist, to forecast changes in consumer beer purchases associated with a proposed price change. You conduct a survey and find that if the price of a six-pack increases from $5.50
to $7.50, the quantity demanded will decrease from 2200 units to 1800 units a month. Should the Micro Brewing Corporation raise its price? Explain the economic basis for this recommendation to the president.
Please provide the best answer for the statement.
Yes, the corporation should increase the price of a six-pack. Over the price range considered, the price elasticity of demand coefficient is 0.65, or inelastic, using the midpoints formula. An increase in price when demand is inelastic will increase total revenue. This increase in total revenue also can be shown by multiplication. With a price of $5.50 times a quantity of 2200 per month, the total revenue was $12,100. With the higher price of $7.50 times a lower quantity of 1800, the total revenue is $13,500. Thus, there is a gain of $1400 in total revenue from raising the price.
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In the above figure of a monopolistically competitive firm, in the long run after all industry adjustments have taken place, assuming that this firm's costs have not changed the firm will
A) produce more output at a higher price. B) produce less output at a lower price. C) produce the same quantity at the same price. D) Any of the above are possible.
Which of the following is the most accurate statement?
a. In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed high rates of inflation. b. In the 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation. c. In the 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed high rates of inflation. d. In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed low rates of inflation.