What is cost-plus pricing? Cost-plus pricing is A. charging, for example, $4.95

ID: 1123657 • Letter: W

Question

What is cost-plus pricing?

Cost-plus pricing is

A. charging, for example, $4.95 instead of $5.00 or $199 instead of $200.

B. charging consumers a price by adding a percentage markup to average cost.

C. charging consumers a price by adding a percentage markup to marginal cost.

D. charging consumers a price that is equal to average variable cost plus average fixed cost.

E. charging consumers a price for the right to buy as much of a good as they want at a second price.

Cost-plus pricing is

A. not consistent with a firm maximizing profits because it ignores demand.

B. consistent with a firm maximizing profits if marginal cost is different than average cost at the current level of production.

C. consistent with a firm maximizing profits because price is set such that the marginal cost of production is minimized.

D. consistent with a firm maximizing profits because price is set such that the quantity sold is where marginal cost equals marginal revenue.

E. both a and b.

The percentage markup

A. is higher on products that have inelastic demand and is lower on products that have elastic demand.

B. is lower on products that have inelastic demand and is higher on products that have elastic demand.

C. does not change depending on price elasticity of demand.

D. pricing method is not followed by most of the firms in the U.S.

1> B. charging consumers a price by adding a percentage markup to average cost.

Reason

Cost plus pricing is done by pricing at a certain percentage above the average cost.

2> A. not consistent with a firm maximizing profits because it ignores demand.

Reason

It does not consider the demand or not the marginal revenue curve.

3>C. does not change depending on price elasticity of demand.

Reason

Since it is based on the supply side of the market, it is not dependent on the demand of it.

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