The optimal markup on variable cost:
A) increases as unit sales become more sensitive to price.
B) decreases as unit sales become more sensitive to price.
C) is not affected by the price sensitivity of a product's sales volume.
D) is equal to [ed/(1 + ed)] + 1, where ed is the price elasticity of demand.

Question

Quizplus · Accepted Answer

The optimal markup on variable cost decreases as unit sales become more sensitive to price. This is because when unit sales are more price-sensitive, increasing the price will result in a greater decrease in unit sales. Therefore, the markup must be lower in order to maintain a reasonable level of unit sales and revenue.

The Optimal Markup on Variable Cost