Table 7-11 -Refer to Table 7-11

question 143

Multiple Choice

Table 7-11
$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Hourly Rental } \\\text { Rate (dollars) }\end{array} & \begin{array}{c}\text { Quantity Demanded } \\\text { (hours) }\end{array} \\\hline \$ 60 & 40 \\\hline 75 & 32 \\\hline 80 & 30 \\\hline 100 & 24 \\\hline\end{array}$
-Refer to Table 7-11.Katie Graham owns a kayak rental service in Santa Barbara.Table 6.5 shows her estimated demand schedule for kayak rentals per week.She would like to increase her sales revenue by changing the price she charges for rentals.At present she charges $75.Based on the information in the table,Katie

• A) is not able to increase her revenue by changing her price because the demand for kayak rentals is unit elastic.
• B) should lower her price to $60 to increase her revenue because the demand for kayak rentals is price elastic.
• C) should raise her price to $80 to increase her revenue because the demand for kayak rentals is price inelastic.
• D) should raise her price to earn the most revenue.

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Definitions:

Marginal Cost

The expense involved in creating one more unit of a product or service.

Constant Returns to Scale

A situation in which output increases by the same proportion as inputs when the scale of production is changed.

Long-run Average Total Cost

The average total cost when all factors of production are variable and economies of scale are fully exploited, indicating the lowest possible cost per unit.

Economies of Scale

Economies of scale refer to the cost advantage that arises with an increased output of a product, as fixed costs are spread out over more units of production, leading to a decrease in the per-unit cost.