The president of Worldwide Gadgets would like to offer special, deeply discounte

Question

The president of Worldwide Gadgets would like to offer special, deeply discounted sale prices to Worldwide's most loyal and best customers under the following terms: 1. The prices will apply only to units purchased in excess of the quantity normally purchased by any given customer 2. The units purchased must be paid for in cash at the time of sale no credit terms to be offered 3. The total quantity sold under these terms to all customers cannot exceed the excess capacity of the firm. 4. The net profit of the firm should not be negatively affected. 5. The prices will be in effect for ten days only Given these conditions, the special sale price should be set equal to the marginal cost of materials only average variable cost of materials only marginal cost of all variable inputs. average cost of all variable inputs. sensitivity value of the variable costs.

Explanation / Answer

Answer is (Marginal cost of all variable inputs).

Explanation;

As we know that marginal costs refer to the cost of additional units produces & sold. So as per question it is clear that Worldwide gadgets does not want to decrease its profits thus it is necessary to receover all variable costs from the customers. Hence price should not be less than marginal costs of all variable inputs.

It is also given that no need to expand capacity of the firm, thus fixed costs will not be there for additional units sold. So Worldwide gadgets can sell additional units at rate of marginal cost of all variable inputs and at this price there will be no decrease & increase in net profit of the firm.

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