Which of the following is NOT a shortcoming of cost-plus pricing? Question 4 ans
ID: 1235021 • Letter: W
Question
Which of the following is NOT a shortcoming of cost-plus pricing?
Question 4 answers
Most often the actual profit margin will be less than profit maximizing margin.
Cost-plus pricing allows firms to set prices equal to a predetermined markup above average costs.
It is unlikely that arbitrary rules or historical precedent to choose a markup will product the maximum profit.
Because cost-plus pricing involves average rather than marginal cost, it does not use the MR=MC rule to find the profit maximizing rate of production.
Explanation / Answer
Cost-plus pricing allows firms to set prices equal to a predetermined markup above average costs.
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