7. The cross-price elasticity of demand between Product A and Product B is -1.5. If the price of Product B increases by 10%, what will happen to the demand for Product A and the nature of their relationship? (A) Demand for A increases by 15%; they are substitutes. (B) Demand for A decreases by 15%; they are complements. (C) Demand for A decreases by 1.5%; they are complements. (D) Demand for A increases by 15%; they are normal goods.

2. Assume that the medical screening industry is perfectly competitive. Consider a typical firm that is making short-run losses. Suppose the medical screening industry runs an effective advertising campaign which convinces many people that yearly CT scans are critical for good health. How will this affect a typical firm that remains in the industry? (A) The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits. (B) The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. (C) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. (D) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even.

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