Suppose the Demand for Good X Is Given by Q^d_x

question 120

Multiple Choice

Suppose the demand for good X is given by Q^d_x = 10 + a_xP_x + a_yP_y + a_MM.If a_y is positive,then:

• A) goods y and x are complements.
• B) goods y and x are inferior goods.
• C) goods y and x are normal goods.
• D) goods y and x are substitutes.

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Definitions:

Total Leverage

A measure of a company's combined use of financial and operational leverage.

Operating Leverage

A financial measure of a firm's fixed versus variable costs, which assesses how revenue growth translates into growth in operating income.

Financial Leverage

The use of borrowed funds to increase the potential return on investment.

MM Model

The MM Model, or Modigliani-Miller Theorem, is a finance theory that suggests market value of a company is determined by its earning power and risk of underlying assets, independent of its capital structure.