If the Elasticity of Demand for Mothballs Is 0

question 18

Multiple Choice

If the elasticity of demand for mothballs is 0.50, then moving along the demand for mothballs:

• A)​A 20% rise in the price of mothballs will lead to a 10% fall in the quantity of mothballs demanded.
• B)​A 10% rise in the price of mothballs will lead to a 20% fall in the quantity of mothballs demanded.
• C)​A 20% rise in the price of mothballs will lead to a 10% rise in the quantity of mothballs demanded.
• D)​A 10% rise in the price of mothballs will lead to a 20% rise in the quantity of mothballs demanded.

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Definitions:

Net Operating Income

A measure of a company's profitability from its regular business operations, excluding revenues and expenses from non-operating activities.

Margin of Safety Percentage

A financial metric indicating the difference between actual or forecasted sales and sales at the break-even point, expressed as a percentage of total sales.

Degree of Operating Leverage

A measure that quantifies the percentage change in a company's operating income resulting from a percentage change in its sales volume.

Net Operating Income

The profit a business makes after subtracting operating costs, yet prior to removing interest and tax expenses.