Suppose the Demand Curves for Goods A,B,and C Have the Following

question 66

Multiple Choice

Suppose the demand curves for goods A,B,and C have the following functional forms,where Q denotes quantity demanded,P denotes price,and M denotes income: QA = 120 - 3.5PA - 6PB + 14M QB = 100 - 2PB + 3PC + 1.1M QC = 1500 - 0.5PC - 300M.
Based on these demand curves,which of the following goods are known to be normal goods?

• A)A
• B)B
• C)C
• D)A and B only
• E)A,B and C

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Definitions:

Contribution Margin Ratio

The percentage of each sale that contributes to covering fixed costs after variable costs have been paid.

Fixed Costs

Costs that do not vary with production level, such as rent, insurance, and salaries of administrative staff.

Variable Costs

Expenses that change directly and proportionally with the level of production or sales volume, such as raw materials and direct labor.

Break-Even Point

The level of sales at which total revenues equal total costs, resulting in zero profit.