A firm is operating at 90% capacity. When the market price for their product rises and they want to increase QS, ……….

1. They will be able to respond because their S will be relatively elastic

2. They will not be able to respond very much because their S will be relatively inelastic

The firm has 3 months worth of production held in inventory. The market price has increased.

1. The firm will respond by increasing S – simply by bringing the inventory to market

2. The firm has a relatively elastic Supply

3. Neither 1 or 24. Both 1 and 2

--Firm A makes cookies. They can easily change from one brand of flour to another. --Firm B makes a special diet cookie that must use a only Brand X flour.

1. Both firms have elastic S curves2. Neither firm has an elastic S curve3. Firm A- inelastic S curve4. Firm B – elastic S curve5. Firm A – elastic S ; Firm B – inelastic S

Which scenario would create an inelastic S curve?

1. A firm was able to convince its highly skilled workers to move to the west coast to build a new production facility

2. An accounting firm has very little physical capital besides its office furniture. There was a significant increase in demand for accountants in Europe

3. Both 1 and 2 would result in elastic S curves4. Both 1 and 2 would result in inelastic S curves

Determinants of PES

• Spare capacity • Inventory• Ease of Factor Substitution • Mobility of Capital and Labor

• PES and Total Revenue have no relation