​A Problem with Using the Price of a Product Similar

question 20

Multiple Choice

​A problem with using the price of a product similar to the intermediate good sold on the market is

• A)​the market price includes a margin above marginal cost
• B)the product on the market may include costly features your downstream division does not use
• C)the product on the market may be cheap because it is not as high of quality as your downstream division uses
• D)​all of the above

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Definitions:

Income Elasticity

A measure of how much the demand for a good or service changes in response to a change in the income of consumers.

Demand Is Elastic

A situation where the quantity demanded of a product changes significantly with a change in its price.

Total Revenue

The overall amount of money earned by a firm from the sale of its products or services before any costs are subtracted.

Point Elasticity

A measure of elasticity that uses the slope measurement.