Suppose a Fast-Food Chain Determines That the Price Elasticity of Demand

question 45

Multiple Choice

Suppose a fast-food chain determines that the price elasticity of demand for its hamburgers is 0.75,and the price of the hamburger is currently $4.00.What will be the effect on quantity demanded and total expenditure on this chain's hamburgers if the price is increased to $6.00?

• A)Quantity demanded will fall by 30%,and total expenditure will increase.
• B)Quantity demanded will fall by 40%,and total expenditure will increase.
• C)Quantity demanded will fall by 75%,and total expenditure will increase.
• D)Quantity demanded will fall by 0.3%,and total expenditure will decrease.
• E)Quantity demanded will fall by 0.4%,and total expenditure will decrease.

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Definitions:

Marginal Utility

The additional satisfaction or utility that a person receives from consuming an additional unit of a good or service.

Consumer's Income

The total amount of income available to an individual or household to spend or save, after taxes and other deductions.

Units of Product

Specific quantities of a product produced, identified for purposes of measurement, sale, or analysis.

MU/P

The marginal utility per unit of price, which helps to calculate how much satisfaction consumers derive from purchasing additional units of a product relative to its cost.