Suppose the Absolute Value of the Price Elasticity of Demand

question 9

Multiple Choice

Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is ∞.What happens to sales revenue if the restaurant increases its price by 5 percent?

• A)Sales revenue falls by less than 5 percent.
• B)Sales revenue remains unchanged.
• C)Sales revenue falls by 100 percent.
• D)It cannot be determined without information on prices.

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Definitions:

Correlation Coefficient

A statistical measure that calculates the strength and direction of a linear relationship between two variables, ranging from -1 to 1.

Diversification

A strategy to reduce risk by allocating investments among various financial instruments, industries, and other categories.

Nonsystematic Risk

The part of an investment's risk that is attributable to firm-specific or industry-specific factors and can be mitigated through diversification.

Volatility

A statistical measure of the dispersion of returns for a given security or market index, often used to quantify the risk of the security or market.