If a Monopolistically Competitive Firm Lowers Its Price And, as a Result

question 30

Multiple Choice

If a monopolistically competitive firm lowers its price and, as a result, its total revenue decreases then

• A)the output effect of the price change was less than the price effect.
• B)the output effect of the price change was greater than the price effect.
• C)the firm's demand curve must have decreased.
• D)the substitution effect of the price change was greater than the income effect.

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Definitions:

Margin of Safety

The difference between actual or projected sales and the break-even point, indicating the amount by which sales can drop before a business incurs a loss.

Break-even Point

The level of sales at which total revenues equal total costs, and the business makes no profit but also incurs no loss.

Break-even Analysis

An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue, indicating no net loss or gain.

Operating Income

Income from a company's main business activities, excluding expenses such as interest and taxes.