A firm is experiencing an increase in variable costs.What can the firm do to maintain its profitability?
A)Raise its price to increase its contribution margin.
B)Lower its price to gain a greater market share.
C)Increase its fixed costs to balance out its increased variable costs.
D)Decrease its fixed costs to breakeven sooner.

Question

Quizplus · Accepted Answer

By raising the price, the firm can increase its contribution margin, which is the difference between the selling price and variable costs per unit. This can offset the increase in variable costs and maintain profitability. Lowering the price to gain market share may not necessarily increase revenue and could further decrease profitability. Increasing fixed costs or decreasing fixed costs may not directly impact the variable costs and may not be effective in maintaining profitability.

A Firm Is Experiencing an Increase in Variable Costs