Refer to the Graphs Above

question 18

Multiple Choice

Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. How will the firm respond to a negative demand shock if prices are flexible?

• A) The firm will continue to produce 500 computers per week and charge a price of $600
• B) The firm will continue to produce 500 computers per week and charge a price of $1200
• C) The firm will cut production to 300 computers per week and charge a price of $1000
• D) The firm will cut production to 300 computers per week and charge a price of $600

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Definitions:

Higher-than-average Returns

Profits or yields that exceed the norm or average for a particular investment or sector.

Beta

A measure of the volatility or risk of a security or a portfolio in comparison to the market as a whole.

Diversifiable Risk

A type of investment risk that can be reduced or eliminated through diversification, including risks specific to an industry, company, or region.

Unsystematic Risk

The risk that is specific to a company or industry, which can be reduced through diversification.