Tracey Sells 100 Gourmet Cupcakes Per Day at $2 Each

question 357

Multiple Choice

Tracey sells 100 gourmet cupcakes per day at $2 each. She is considering raising her price to $2.50 per cupcake in order to increase her total revenue. If the price elasticity of demand for Tracey's cupcakes is 2, would she increase her total revenue?

• A) Yes; total revenue would rise, since she would sell even more cupcakes due to the high elasticity.
• B) Yes; total revenue would rise despite selling fewer cupcakes per day.
• C) No; total revenue would fall because she would sell far fewer cupcakes.
• D) No; total revenue would fall despite selling more cupcakes due to the high elasticity.

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Definitions:

Risk-Averse

The characteristic of preferring to avoid risk, typically by choosing more certain outcomes over those with potentially higher but risky returns.

Positively Correlated Events

Situations or variables that move in the same direction, implying that as one increases, the other also increases.

Diversification

A risk management strategy that involves allocating investments among various financial instruments, industries, or other categories to minimize risk.

Expected Value

A calculated average of all possible values for a random variable, weighted by their probabilities of occurrence.