HBX Economics for Manager Questions and Answers (100% Correct Answers) Already Graded A+

Diminishing Marginal Returns [ Ans: ] An economic relationship stating that a consumer's willingness to pay for a product should decrease for additional units of a product (i.e. the tenth milkshake will not taste as good as the first). Demand Curve, Market [ Ans: ] A graphical representation of the willingness to pay of all buyers for various quantities of a product or service. The market demand curve is the horizontal sum of each individual's demand curve at a given price. Willingness to Pay (WTP) [ Ans: ] The highest price a consumer is willing to pay for a product or service. One can think of it as the price at which the consumer is just indifferent between purchasing the product and not purchasing it Steep Curve or Vertical [ Ans: ] Inelastic Flat Curve or Horizontal [ Ans: ] Elastic Demand curve: Steep or flat? Inelastic or Elastics? [ Ans: ] 1. If the product has close SUBSTITUTES 2. If the product is a necessity or a luxury. 3. Time horizon. (over time people can discover new alternative) Demand curve [ Ans: ] Summarize all the willingness to pay for all consumers Demand [ Ans: ] Refers to the quantity of a good or service desired at any given price. The term "demand" is often used colloquially to describe how many consumers might be interested in purchasing a product; more precise concepts include Willingness to Pay and Demand Curve. Demand Curve, Individual [ Ans: ] A graphical representation of a buyer's willingness to pay for various quantities of a product or service (price on Y-axis, quantity on X-axis). Elasticity [ Ans: ] A measure of the responsiveness in one variable to a change in another variable. Mathematically, it is the percentage change in one variable, divided by the percentage change in another variable; for more details, see price elasticity of demand. Elasticity does not depend on the units in which variables are measured (unlike the concept of slope). Elasticity ε= [ Ans: ] |(ΔQ/Q)/(ΔP/P)| Percentage changes should be calculated as: [ Ans: ] (New−Old)/Old Sunk Cost [ Ans: ] A fixed cost that has already been incurred at the time that a firm is making a production or pricing decision (e.g. money spent on exploratory research for a new product shouldn't be considered when pricing the product). When demand is elastic, [ Ans: ] you can't afford to raise prices. It pays to lower prices. When demand is inelastic, [ Ans: ] It pays to raise prices. Revenues maximized in linear demand curves [ Ans: ] When "price where elasticity" = 1 (Slope Curve) m = [ Ans: ] (Y2 - Y1) / (X2 - X1) The income elasticity of demand: [ Ans: ] How sensitive is demand to changes in consumer incomes? A measure of the responsiveness of demand for a product or service to a change in consumers' incomes. Mathematically, it's calculated as the percentage change in quantity demanded for a product or service, divided by the percentage