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Last Update: 2017-04-18
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NO.1 A company reduces the price of its product, hoping to increase its overall profits. When the
quarterly numbers come in, the company sees that the decrease in price has led to a decrease in
profits. It decides to change the price back to its original price, but profits still do not recover to their
original levels. What happened?
A. The company experienced economies of scale at the lower price.
B. Demand has become more elastic since the first price change.
C. The price elasticity of demand was 1 before the first price change.
D. Demand has become less elastic since the first price change.
Answer: B
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NO.2 Two years ago, the purchasing manager at a company spent $25,000 on a new machine that
would improve production efficiency at the company. The manufacturers of the machine release an
updated model that costs $35,000 and that promises to further improve production efficiency. Under
what conditions should the purchasing manager upgrade to the new model?
A. If the savings from the additional efficiency improvements are large enough to offset the $35,000
cost of the new machine
B. If the efficiency improvements from the old machine did not result in enough savings to offset the
$25,000 purchase price
C. If the savings from the additional efficiency improvements are large enough to offset the $10,000
difference in price between the machines
D. If the savings from the additional efficiency improvements are large enough to offset the $60,000
spent on machines
Answer: A
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