Question

1. If the price elasticity of demand is -2.5 then a 10 percent decrease im the price will cause the quantity demand to?

2. The economic theory of the firm assumes that the primary objective of a firm’s owner or owners is to?

3. A firm’s demand curve is usually?

4. Information on the maximum a person is willing to pay to buy a specific quantity of a good or service is shown on curve or line called?

5. If average variable cost is increasing with imcreases in output then average fixed cost will?

Answer 1

Since the elasticity of demand can be defined as the measurement of the degree of the responsiveness of the quantity demand due to the change in the price level.

Price elasticity of demand= % change in the quantity demand/ % change in the price

-2.5=% change in the quantity demand/ (-10%)

% change in the quantity demand=-2.5*(-10)

=25%

The quantity of demand will increase by=25%

2.

According to the economic theory of the firm, a firm owner main purpose is to maximize profit. The profit is maximized according to the following condition

MR=MC

3.

Since the law of demand stats that there is an opposite relationship between price and quantity demanded and other factors which affect the demand remains same. A numerical tabulation of this relationship is known as the demand schedule. The demand curve is the graphical representation of the law of demand. The demand curve is negatively sloped. The demand curve shows an inverse relationship between price and quantity demand.

Hence it can be said that a firm’s demand curve is usually downward sloping.

4.

Since the consumer surplus is the area below the demand curve and above the price. In other words, the consumer surplus is the difference of maximum willingness to pay for any good and price of that good.

Demand curve shows the maximum willingness to pay for any goods or services.

Hence it can be said that Information on the maximum a person is willing to pay to buy a specific quantity of a good or service is shown on curve or line called demand curve.

5.

Total fixed is a cost which does not change with the change in the output level.

AFC=TFC/Q

So with the increase in the output level, the AFC continue to decrease.

AFC is not related to AVC but it is related to output. So with the increase in the output AFC will decrease.

If average variable cost is increasing with imcreases in output then average fixed cost will decrease.