Suppose the Absolute Value of the Price Elasticity of Demand

question 9

Multiple Choice

Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is ∞.What happens to sales revenue if the restaurant increases its price by 5 percent?

• A)Sales revenue falls by less than 5 percent.
• B)Sales revenue remains unchanged.
• C)Sales revenue falls by 100 percent.
• D)It cannot be determined without information on prices.

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Definitions:

Exponents

Mathematical symbols representing the number of times a number or expression is multiplied by itself.

Production Function

A mathematical representation that defines the relationship between inputs used in production and the output generated from those inputs.

Returns To Scale

The rate at which production increases in response to proportional increases in all inputs.

Returns To Scale

The rate at which output changes if the scale of all inputs is changed by the same proportion in the production process.