During the Height of the Pet Rock Craze in the 1970s

question 46

Multiple Choice

During the height of the pet rock craze in the 1970s, the price elasticity of demand was estimated to be 1.20.Since pet rocks have a marginal cost of zero, a profit-maximizing seller of pet rocks would

• A)leave prices unchanged.
• B)need more-detailed market information before making any pricing changes.
• C)decrease prices.
• D)increase prices.
• E)diversify into selling Karen Carpenter LPs.

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Definitions:

Network Externalities

Economic effects that occur when the value or utility of a product or service to a user depends on how many other users there are.

Buy a Unit

The action of purchasing a single item or measure of a product for a specified price.

Perceived Market Share

An estimate of the fraction of total market sales captured by a firm, based on the perception of consumers or the firm itself.

Actual Market Share

The real or actual percentage of a market controlled by a company or product, measured by sales volume or revenue.