Suppose You Are the Manager of a Local Water Company

question 92

Multiple Choice

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is −.25, by how much would you have to raise the price of water?

• A) 10 percent
• B) 25 percent
• C) 40 percent
• D) 100 percent

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Definitions:

Transfer

The act of moving or conveying something from one place, person, or entity to another.

Capital Surplus

The amount of equity in a company that is derived from contributions by shareholders in excess of the par value of the shares.

Par Value

The nominal or face value of a stock or bond as stated by the issuer.

Cash Flow Test

A financial analysis method to determine the liquidity of a company by measuring the cash it generates or uses in its operations.