Question

AaBbCcDdEe Normal Text Box 1) The suggestion that a seller will try to set price based on "what the market will beris explicit recognition of the constraint imposed by: A) the firm's marginal cost of production. B) the price elasticity of demand for that item. C) the firm's competitors. D) the need for most firms to earn positive economic profits over time if they are to remain in 2) By and large, the price of each item on a restaurant menu is A) an accurate reflection of the item's marginal cost. B) based strictly on consumer demand C) a function of cost and the price elasticity of demand for the item D) a fixed multiple of the item's total cost is.referred to as: A) avcragc cost pricing. B) percentage pricing C) rate-of-return pricing. D) matkup pricing. 4) Which of the following statements is correct? A) To maximize profit, a firm should apply a uniform markup to each product it sells B) The profit-maximizing firm's ability to mark up price over average cost is limited by the price elasticity of demand for the product in question. C) It is not possible to maximize profits by using a markup pricing strategy D) Using markup pricing is more complicated than simply setting price equal to marginal cost 5) Assume a change in price causes the price clasticity of demand for a good (in absolute valuc) and marginal revenue to decrease. In this case we can conclude that the price of the good was: A) incrcascd B) held constant c) decrcased D) cannot be determined Print Layout View Sec 1 Pages of 3Words: 476 of 605L 100% MacBook Pro

Answer 1

(1) (B)

If elasticity of demand is higher than (lower than 1), demand is elastic (inelastic), so a high price will decrease quantity demanded more than (less than) proportionally, and a low price will increase quantity demanded more than (less than) proportionally.

(2) (C)

Price is set on basis of elasticity of demand described above, subject to the price being at least equal to unit cost.

(3) (D)

Mark-up pricing strategy sets price as a multiple of unit cost (or marginal cost).

(4) (B)

Explained in Q1.

NOTE: As per Answering Policy, 1st 4 questions are answered.