If a 10 Percent Increase in the Price of Product

question 18

Multiple Choice

If a 10 percent increase in the price of product A brings about a 3 percent increase in the sales of product B, then:

• A) products A and B are complementary.
• B) the cross elasticity of demand between these two products is positive.
• C) products A and B are substitutes.
• D) the demand for these products is inelastic.

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Definitions:

Economies of Scale

Reductions in the firm’s per-unit costs associated with the use of large plants to produce a large volume of output.

Profit-Seeking Entrepreneurs

Individuals who start and run businesses with the primary goal of making a profit, often taking on financial risks in the pursuit of economic gains.

Economic Profits

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, representing excess profit above normal expected returns.

Resources Required

The inputs needed for the production of goods or services, including time, labor, capital, and materials.