Author Question: A firm bought a pizza oven for 13,500 and if it shut down now, could sell the oven for 9,500. Which ... (Read 91 times)

faduma · **on:** Jul 1, 2018

A firm bought a pizza oven for 13,500 and if it shut down now, could sell the oven for 9,500. Which of the following statements is TRUE?

A) The relevant cost of the oven when considering shutting down is 13,500.
B) The relevant cost of the oven when considering shutting down is 9,500.
C) The relevant cost of the oven when considering shutting down is 4,000.
D) The cost of the oven does not matter when deciding whether or not to shut down.

Question 2

The demand curve is: QD = 500 - 1/2 P.

a. Calculate the (point) price elasticity of demand when price is 100. Is demand elastic or inelastic?
b. Calculate the (point) price elasticity of demand when price is 700. Is demand elastic or inelastic?
c. Find the point at which point elasticity is equal to -1.

ASDFGJLO · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

C

Answer to Question 2

a. Elasticity = -1/2 (100/450 ) = -0.11, and is inelastic.
b. Elasticity = -1/2(700/150 ) = -2.5, and is elastic.
c. Elasticity is -1 at the midpoint of the demand curve, which is at a price of 500 and a quantity of 250.