Economics

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Homework Assignment # 2 (Microeconomics / Elasticity)

Due on Thursday, July 23, 2015

Instructions: Please circle the correct answer. This homework is based upon Chapters 3 & 6, the Elasticity PowerPoint, the Audio-Visual lecture, Class Lectures and Logic.

1. How does a business owner confirm that their pricing strategy was successful?

A) It is a success if the business can avoid paying corporate income taxes

B) It is a success if the customers don’t complain about the price

C) It is a success if the Price X Quantity = The Maximum Total Revenue

D) There is no true method to measure a successful pricing strategy

2. If you have a product with a midpoint elasticity of 0.25, then what will be your best pricing

strategy?

A) You must try to lower the price to earn more total revenue. This will also get you more customers.

B) You should raise the price to earn more total revenue even if that means losing a few of your customers.

C) Your best pricing strategy is to charge the same prices as your competition.

D) Just find out what your total costs are and add a profit margin of 20 percent.

3. If you have a product with a midpoint elasticity of 1.25, then what will be your best pricing

strategy?

A) You must try to lower the price to earn more total revenue. This will also get you more customers.

B) You should raise the price to earn more total revenue even if that means losing a few of your customers.

C) Your best pricing strategy is to charge the same prices as your competition.

D) Just find out what your total costs are and add a profit margin of 20 percent.

4. Why don’t business economists like using the simple elasticity formula to solve real world

business pricing problems? The formula is written as such:...