Question

27

If a firm adjusted their prices to be high enough to cover their Average Total Costs and if they were not concerned with MC=MR, then we could probably assume they are a nonprofit entity.        

True or False

28

Who will really end up paying for higher taxes on corporate profits if we assume the product that they sell is very inelastic?

Multiple Choice

• The stockholders of the firm will pay this tax when they file their individual tax returns.

• The retail consumer will pay these taxes through higher prices.

• The state government pays these taxes to the federal government

• 1. The senior executives actually pay these taxes when they file their individual tax returns.    

29

If we took an elastic demand curve and raised the price, then this would be the best pricing strategy to maximize total revenue.

                                               

True or False

30

The formula that describes human behavior is which of the following:

Multiple Choice

• MB = MC

• E > 1

• E = 1

• MC = MR

Answer 1

Ans 27. (True) . Because if a firm is to be a profit maximising one than it must have been concerned about MR= MC, as firm equate marginal revenue to marginal cost only if it wants to maximize it's profits but here it have no concern about these two . Firm here just want to charge prices enough to take care about its average total cost.

Ans28. ( b) the retail consumer will pay these taxes through higher prices . Because the product which company sell has the inelastic demand so they can easily transfer the effect of tax on corporate profits to the consumers by charging higher prices , and because the demand for product is inelastic so despite of product being expensive consumer will purchase it due to nature of demand curve .

Ans 29( False) . Because if prices are increased and the demand curve is elastic in nature than any increase in prices will leads to decrease in demand from the consumers in the market and increase in supply of the good . This leads to surplus of goods in the markets and the total revenue instead of increasing it got decreases due ti the nature of elastic demand curve.

Ans 30.(c) E = 1 , means that the elasticity of demand is unity or its means the demand curve is unit elastic. Which means that 1% increase (decrease) in price leads to 1% decrease (increase) in quantity demanded. So it means the human demands are unit elastic in nature.