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
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