When the Price of Oranges Increases from $4 to $6

question 516

Multiple Choice

When the price of oranges increases from $4 to $6 per bag, the quantity demanded of oranges decreases from 800 bags to 700 bags. The price elasticity of demand over this price range is equal to

• A) 3.
• B) 3/7 or 0.4286.
• C) 1/3 or 0.3333.
• D) 1/4 or 0.25.

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Definitions:

Cost of Capital

The rate of return a company must earn on its investments to maintain its market value and attract funds.

Use of Leverage

The practice of using borrowed money to increase the potential return of an investment, which also increases the risk of loss.

Diluting Existing Shares

A process where a company issues more shares, leading to a reduction in the ownership percentage of existing shareholders.

Public Utility

A company providing essential services such as water, electricity, and telecommunications to the public, often subject to government regulation.