If the Elasticity of Demand for Cigarettes Is 0

question 105

Multiple Choice

If the elasticity of demand for cigarettes is 0.4,a seller should

• A)Increase price to increase total revenue.
• B)Decrease price to increase total revenue.
• C)Reduce price to maximize profits.
• D)Increase price because the percentage change in quantity demanded will be greater than the price effect.

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Definitions:

Out-of-pocket Cost

Expenses that are paid out directly and result in a financial outlay.

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted, indicating how much contributes to covering fixed costs and generating profit.

Operating Capacity

The maximum output that a company can produce under normal circumstances over a specific period.

Sunk Costs

Costs that have already been incurred and cannot be recovered, which should not influence future business decisions.