What is the reason that the marginal revenue curve lies below the demand curve for a firm with market power?
Explanation
This question tests the core intuition behind why a monopolist's or monopolistically competitive firm's marginal revenue is less than its price, a concept explained with an example on page 84.
Other questions
According to the definition provided in Chapter 3, what does the own price elasticity of demand measure?
If the own price elasticity of demand for a product is -2.5, how would the demand for this product be classified?
According to the Total Revenue Test, if a firm's demand is elastic, what is the effect of a price increase on total revenue?
Table 3-2 shows that the own price elasticity of demand for food is -0.7, while the elasticity for cereal is -1.5. What is the most likely explanation for this difference?
A firm's marginal revenue (MR) is related to the price (P) and the own price elasticity of demand (E) by the formula MR = P * [(1 + E) / E]. If the firm's demand is unitary elastic (E = -1), what is its marginal revenue?
What does a positive cross-price elasticity of demand between good X and good Y indicate?
The income elasticity of demand for a product is -0.7. How would this product be classified?
For a linear demand function given by Qd_x = a0 + ax*Px + ay*Py + aM*M + aH*H, what is the formula for the own price elasticity of demand (EQx,Px)?
If a demand function is log-linear, such as ln(Qd) = 2.23 - 1.2*ln(Q) + 1.25*ln(Pop), what is the own price elasticity of demand?
What is the primary job of an econometrician, as described in Chapter 3?
In a regression analysis, if a coefficient's P-value is 0.03, what can a manager conclude?
If a manager has data showing that when the price of a product was $127,100, 4,890,000 units were sold, and when the price was $128,200, 4,770,000 units were sold, what tool can be used to approximate the own price elasticity?
The own price elasticity for a firm's product is -1.5, and it earns $4,000 from this product (Product X) and $2,000 from a complementary product (Product Y). The cross-price elasticity between Y and X is -4.0. What is the total change in revenue if the firm reduces the price of Product X by 1 percent?
Why does demand tend to be more inelastic in the short term than in the long term?
Based on the regression output in Table 3-8, what does the 't-Statistic' of -4.89 for the Price coefficient signify?
What is the primary drawback of using R-square as a measure of the goodness of fit for a regression model?
A manager's research department provides the following linear demand function for a product: Qd = 2000 - 4P - 10P_s + 0.05M, where P is the product's price, P_s is a substitute's price, and M is income. If P=$100, P_s=$150, and M=$30,000, what is the cross-price elasticity of demand?
According to the 'Rule of Thumb for a 95 Percent Confidence Interval' on page 99, how can you approximate the confidence interval for a true parameter 'b' if the estimate is b-hat and its standard error is s_b?
An analyst estimates the demand for raincoats is given by ln(Qd) = 10 - 1.2*ln(Px) + 3*ln(R) - 2*ln(Ay), where R is rainfall. What is the impact on demand of a 10 percent increase in the daily amount of rainfall?
What is the primary reason a manager might use adjusted R-square instead of R-square?
If a 10 percent increase in price leads to a 5 percent decrease in quantity demanded, the own-price elasticity of demand is:
According to Table 3-3, which of the following goods has the most inelastic demand in the short-term?
If a firm's advertising elasticity of demand is 0.25, what does this value imply?
A firm's demand is perfectly elastic. What is the value of its own-price elasticity of demand?
An economic consultant for X Corp. estimates the demand function for the firm’s product as Qd_x = 12,000 - 3Px + 4Py - 1M + 2Ax. Based on this equation, what can be concluded about good X?
In the regression output for FCI's rental units in Table 3-9, the F-statistic is 7.59 and its significance value is 0.0182. What does this indicate?
If a 1 percent increase in consumer income leads to a 2 percent decrease in the quantity demanded of a good, what is the income elasticity of demand?
According to Table 3-1, at which price is the demand for software unitary elastic?
Which of the following is NOT one of the three factors discussed in Chapter 3 that affect the magnitude of the own price elasticity of a good?
If a firm wants to increase its total revenue, and it knows that the demand for its product is inelastic, what should the firm do to its price?
The demand function for TVs is estimated as Q = 1631.47 - 2.60P. At the average price of $455, what is the own-price elasticity of demand?
The log-linear demand for breakfast cereal is estimated as ln(Qc) = -7.256 - 1.647*ln(Pc) + 1.071*ln(M). What is the income elasticity of demand for cereal?
What type of product has an income elasticity that is negative?
If a firm's only available information is that the own-price elasticity for its product is -0.5, and it is currently maximizing profit, what can be inferred about its marginal revenue (MR)?
What is the key advantage of using multiple regression over simple regression for estimating demand?
If a firm's own-price elasticity of demand is -4.0 and its advertising elasticity is 0.2, what is the profit-maximizing advertising-to-sales ratio?
If the long-term own price elasticity for clothing is -2.9 and the short-term elasticity is -0.9, what does this imply about consumer behavior?
A manager of a computer company estimates the own price elasticity for a desktop computer is -1.7. To increase overall revenues, what should the manager do?
What is the 'caveat' mentioned on page 107 regarding regression analysis?
If the income elasticity for nonfed ground beef is -1.94, and an economic upturn is expected to raise consumer incomes by 5 percent, what is the expected impact on the sales of nonfed ground beef?
A general elasticity measures:
If a manager of an online store selling PDAs in Europe sees from the data in 'Inside Business 3-4' that the elasticity for a Sony Clié SJ22 is -3.3, what would a 10 percent price reduction do to sales?
If the cross-price elasticity of demand for clothing with respect to the price of food is -0.18, what is the expected change in demand for clothing if the price of food decreases by 10 percent?
If a manager finds that the lower and upper bounds of a 95 percent confidence interval for a price coefficient are -3.82 and -1.37, what is the best estimate for the coefficient?
The demand for a product is given by the equation Qd = 80 - 2P. At what price is total revenue maximized?
In Demonstration Problem 3-5, a log-linear demand function is estimated for Broadway tickets. The resulting equation is ln(Qd) = 8.44 - 1.58*ln(P). What is the own-price elasticity of demand for these tickets?
Why might a product like salt have a very inelastic demand?
In the regression for FCI's rental units (Table 3-9), the coefficient for Advertising is 0.54, but its P-value is 0.4296. What should the manager conclude about the effect of advertising?
A manager is contemplating a 10 percent price cut on a product with an own-price elasticity of -1.0. What will be the impact on the quantity sold and total revenue?