If the Price of Milk Increased by 5 Percent Because

question 3

Multiple Choice

If the price of milk increased by 5 percent because of an increase in the demand for milk, and the quantity of milk supplied increased by 7 percent

• A) the supply curve of milk has shifted rightward.
• B) the price elasticity of supply of milk is greater than one.
• C) milk is more of a luxury than a necessity.
• D) milk is more of a necessity than a luxury.

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Definitions:

Marginal Revenue

The additional income generated from selling one more unit of a product or service.

Total Revenue

The total amount of money received by a firm from selling a certain quantity of goods or services, calculated as the price per unit times the number of units sold.

Marginal Revenue Curve

A graphical representation showing the change in total revenue that results from selling one additional unit of a good or service.

Profit Maximization Condition

The state or point at which a firm achieves the highest possible profit, often determined by the marginal cost equalling the marginal revenue.