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.

Question

Quizplus · Accepted Answer

The profit-maximizing firm should set the price where marginal revenue equals marginal cost. The ability to mark up the price over average cost depends on the price elasticity of demand. If demand is elastic, then the firm cannot mark up prices significantly without losing sales and profits. Using a uniform markup on all products may not be profitable as it does not take into consideration the different price elasticities of demand of each product. Markup pricing can be a useful strategy in some cases, but it is not always the best option, and it can be more complicated than simply setting prices equal to marginal cost.

Which of the Following Statements Is Correct