1 You are the CEO of a company that sells ink You are told t

1. You are the CEO of a company that sells ink. You are told that the own price elasticity of demand for
your ink at the price you currently charge is 0.5. What does this mean?

A. A one percent increase in the price of ink will increase the quantity demanded by an even larger
percent.
B. Demand is price elastic.
C. For a small change in the price of ink, the percentage change in the quantity demanded will be less
than the percentage change in price.
D. A 1% price increase leads to a 5.0% decrease in quantity supplied.
E. None of the above is correct.

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2. Assume all fixed costs are sunk costs. If a profit maximizing firm does not produce any output in the
short run, then it must be true that its

A. total costs are zero.
B. economic profit is positive.
C. accounting profit is negative.
D. total fixed costs are zero.
E. total variable costs are zero.

Solution

1) the correct answer is option A. A one percent increase in the price if ink would increase the quantity of demand by a larger percent

2) the correct answer is option B. It is that economic profit is positive