Figure 5-9 -Refer to Figure 5-9.Suppose This Demand Curve Is a Straight,downward-Sloping

question 502

Multiple Choice

Figure 5-9

-Refer to Figure 5-9.Suppose this demand curve is a straight,downward-sloping line all the way from the horizontal intercept to the vertical intercept.We choose two prices,P₁ and P₂,and the corresponding quantities demanded,Q₁ and Q₂,for the purpose of calculating the price elasticity of demand.Also suppose P₂ > P₁.In which of the following cases could we possibly find that (i) demand is elastic and (ii) an increase in price from P₁ to P₂ causes an increase in total revenue?

• A) 0 < P1 < P2 < $10.
• B) $10 < P1 < P2 < $15.
• C) P1 > $15.
• D) None of the above is correct.

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Definitions:

Discount Rate

The rate of interest applied in DCF evaluations to estimate the current worth of future cash inflows.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period, used in capital budgeting to assess profitability.

Sales Revenues

The total amount of money generated from sales of goods or services before any expenses are subtracted.

Operating Expenses

Costs related to the day-to-day functioning of a business, excluding the cost of goods sold.