There are three goods you are interested in purchasing, X, Y and Z. You notice that the price of Z has fallen. Given that the cross price elasticity between Z and Y is 1.5; the cross price elasticity between Y and X is 3.0, and the cross price elasticity between Z and X is 0.50 . It would make sense that:
a. Z and X are complements; Y and X are substitutes.
b. Y and X are substitutes; Y is complementary to Z.
c. X and Z are unrelated; Y is complementary to X.
d. X and Z are complements; Y and Z are substitutes.
QUESTION 2If a firm is currently equating MR and MC and product price = 24, AVC = 22, and ATC = 26, then in the long run this firm:
a. will continue to operate at a loss.
b. will earn a positive profit.
c. will go out of business.
d. should increase output.
e. should decrease price.
QUESTION 3The cross elasticity between two goods is 2.5 . These goods are:
a. perfect complements.
b. imperfect complements.
c. unrelated.
d. substitutes.
e. inferior.
QUESTION 4If a firm equates MR and MC, then:
a. TR is at a maximum, and TC is at a minimum.
b. output is at a maximum.
c. losses are at a maximum.
d. profits are at a maximum or losses are at a minimum.
e. both TR and TC are at a maximum.
QUESTION 5An increase in the price of good X causes the demand for good Y to shift inward. One can conclude that X and Y are:
a. complements.
b. substitutes.
c. unrelated goods.
d. normal goods.
e. exceptions to the law of demand.
QUESTION 6Under perfect competition, a business firm can accept losses:
a. only in the short run.
b. only for 1 year.
c. only in the long run.
d. no longer than 10 years.
e. never.
QUESTION 7Which of the following pairs is most likely to represent complementary goods?
a. Hotels and campgrounds.
b. Butter and margarine.
c. Bacon and eggs.
d. Miniature golf and bowling.
e. Coffee and tea.
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