What is cost-plus pricing? Why do some firms use cost-plus pricing even when the firms' managers have the resources to devise a pricing strategy that would result in greater profits?
What will be an ideal response?
When a firm uses cost-plus pricing to set the price of a product, it adds a percentage markup (for example, 10 percent or 30 percent) to its average cost at a particular level of production. If the firm sells more than one product the markup is intended to cover all costs, including those that cannot easily be assigned to a particular product. Economists believe that cost-plus pricing may be the best strategy for a firm, even a firm able to afford a more sophisticated pricing strategy, in two situations. First, when the firm's marginal cost and average cost are nearly equal. Second, when estimation of the firm's demand curve is difficult. Many large firms that use cost-plus pricing do not simply charge the marked-up price but alter the price based on the response of consumers in the market and the degree of competition in their industry.
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Refer to Figure 9.6. The amount the government pays in the market to implement this policy is
A) $20. B) $3000. C) $4000. D) $6000. E) $12,000.
The Fed frequently uses the discount rate and the required reserve ratio as instruments of monetary policy
a. True b. False Indicate whether the statement is true or false
Which of the following is incorrect?
A. Accounting profits generally overstate economic profits. B. Managers should only be interested in accounting profits. C. Economic costs include not only the accounting costs but also the opportunity costs of the resources used in production. D. Accounting profits do not take opportunity cost into account.
In the United States, consumers, businesses, governments, and foreigners participate in both the product and factor markets.
Answer the following statement true (T) or false (F)