Question 1

Successful companies:&#10;A)must cover allocated fixed overhead costs during off-peak periods.&#10;B)ignore fixed costs when the firm is operating at full capacity.&#10;C)differentiate markups according to variations in product demand elasticities.&#10;D)set prices based on standard costs per unit, irrespective of short-term variations in actual unit costs.

Accepted Answer

Successful companies often adjust their pricing strategies based on the demand elasticity of their products. This means they differentiate markups according to how sensitive their customers are to price changes. Products with inelastic demand can bear higher markups, while those with elastic demand require more competitive pricing.

Question 2

An 80% markup on price is equivalent to a markup on cost of:&#10;A)20%.&#10;B)44%.&#10;C)56%.&#10;D)400%.

Accepted Answer

D

Question 3

If a firm charges a price of &#8364;9.99 for a product with a cost of &#8364;4, the markup on cost equals:&#10;A)40%.&#10;B)60%.&#10;C)67%.&#10;D)150%.

Accepted Answer

The markup on cost is calculated as (Selling Price - Cost Price) / Cost Price. Here, it is (€9.99 - €4) / €4 = €5.99 / €4 = 1.4975 or 149.75%, which rounds to 150%.

Question 4

If all customers are charged the same price and the demand curve is downward sloping, consumers' surplus is always less than:&#10;A)total revenue minus total cost.&#10;B)the excess of revenues over the minimum amount necessary to produce output.&#10;C)total revenues.&#10;D)the value of output to consumers above and beyond the amount paid to producers.

Accepted Answer

Consumers' surplus is the difference between what consumers are willing to pay for a product and what they actually pay. If all customers are charged the same price, then the price is likely set at the point where the demand curve intersects with the supply curve. This means that all consumers are paying the same price, which is the market price. Therefore, consumers' surplus will always be less than the total revenues generated from the sales of the product (choice C). Total revenue represents the amount of money received by producers from the sale of a good or service, while consumers' surplus represents the value that consumers receive from consuming the good or service above and beyond the amount paid to producers. Hence, C is the best choice.

Question 5

Price discrimination always exists when:&#10;A)prices vary among customers.&#10;B)markups vary among customers.&#10;C)markups are constant among customers.&#10;D)none of these.

Accepted Answer

The answer of Price discrimination always exists when:&#10;A)prices vary among...

Question 6

An 80% markup on cost is equivalent to a markup on price of:&#10;A)20%.&#10;B)44%.&#10;C)56%.&#10;D)400%.

Accepted Answer

A markup on cost of 80% means the cost is increased by 80% to set the selling price. If the cost is $100, an 80% markup makes the selling price $180. The markup on price is calculated as (Selling Price - Cost) / Selling Price. So, ($180 - $100) / $180 = $80 / $180 = 44%.

Question 7

When P = -4, the optimal markup on cost is:&#10;A)25%.&#10;B)33%.&#10;C)75%.&#10;D)400%.

Accepted Answer

To find the optimal markup on cost, we can use the formula:

Optimal Markup = 100% x (P/(P-100))

Plugging in P = -4, we get:

Optimal Markup = 100% x (-4/(-4-100)) = 33.33%

Rounding to the nearest whole number, the answer is 33%, which corresponds to choice B.

Question 8

If a firm charges a price of &#8364;9.99 for a product with a cost of &#8364;4, the markup on price equals:&#10;A)40%.&#10;B)60%.&#10;C)67%.&#10;D)150%.

Accepted Answer

The markup on price can be calculated using the formula: 
markup on price = (price - cost) / cost * 100%

Substituting the given values, we get: 
markup on price = (9.99 - 4) / 4 * 100%
markup on price = 5.99 / 4 * 100%
markup on price = 1.49875 * 100%

Rounding off to the nearest whole number, we get a markup of 60%. Therefore, the correct answer is B).

Question 9

A by-product is any secondary output customarily produced:&#10;A)in fixed proportions.&#10;B)in variable proportions.&#10;C)with MC = 0.&#10;D)with MC = MCQ.

Accepted Answer

By-products are secondary outputs that are produced in fixed proportions with the main product. They have a marginal cost of zero because they do not require any additional inputs to produce.

Question 10

When P = -4, the optimal markup on price is:&#10;A)400%.&#10;B)75%.&#10;C)33%.&#10;D)25%.

Accepted Answer

To find the optimal markup, we use the formula: 
Optimal Markup = (P/(P+1)) x 100%
Plugging in P = -4, we get:
Optimal Markup = (-4/(-4+1)) x 100% = 25%
Therefore, the answer is D. The optimal markup formula is:
Markup = (P / (P - C)) * 100
where P is the price and C is the cost.

Substituting P = -4, we get:
Markup = (-4 / (-4 - C)) * 100

Since the markup cannot be negative, we know that C must be less than -4. Let's try some values of C:

When C = -5, Markup = (-4 / (-4 - (-5))) * 100 = 25%
When C = -6, Markup = (-4 / (-4 - (-6))) * 100 = 33.33%
When C = -8, Markup = (-4 / (-4 - (-8))) * 100 = 50%
When C = -16, Markup = (-4 / (-4 - (-16))) * 100 = 300%

We can see that the highest possible markup is 300% which occurs when the cost is very low. However, since a negative price doesn't make sense, we can only consider values of C greater than -4. Out of these values, the highest markup occurs when C is closest to -4. Therefore, the best choice is D with a 25% markup.

Deck 15: Pricing Practices