Which of the following demand functions represents a price elasticity of demand equal to -0.33 and an income elasticity of demand equal to 0.8 at all points along the curve?
A) Q = 3 - 0.33P + 0.8I
B) Q = 4.5 - 0.33 log(P) + 0.8I
C) log(Q) = 1.34 - 0.33 log(P) + 0.8I
D) log(Q) = 2.34 - 0.33 log(P) + 0.8 log(I)
Question 2
Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of 250 per year on all restaurants that operate in the city.
How does this affect Ronny's profit maximizing decisions? A) No impact on the restaurant's decisions
B) Ronny's will remain in business but will definitely produce less pizza
C) Ronny's will definitely shut down
D) Ronny's decision depends on the circumstances -- if their profits are larger than 250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.
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