The president of your ﬁrm would like to offer special sale prices to your best customers under the following terms:
The prices will apply only to units purchased in excess of those normally purchased by the
Customer.
The units purchased must be paid for in cash at the time of sale.
The total quantity sold under these terms cannot exceed the excess capacity of the ﬁrm.
The net proﬁt of the ﬁrm should not be affected either positively or negatively.
Given these conditions, the special sale price should be set equal to the:
A) Average variable cost.
B) Average total cost minus the marginal cost.
C) Sensitivity value of the variable cost.
D) Marginal cost.
E) Marginal cost minus the average ﬁxed cost per unit.

Question

Quizplus · Accepted Answer

The special sale price should be set at the marginal cost, which represents the cost of producing one additional unit. This ensures that the net profit of the firm is not affected and that the excess capacity of the firm is fully utilized while offering a benefit to the best customers. Choice A (average variable cost) and B (average total cost minus marginal cost) may not be sufficient to cover the full cost of producing another unit, while choice C (sensitivity value of variable cost) and choice E (marginal cost minus average fixed cost per unit) are not relevant in this case.

The President of Your ﬁRm Would Like to Offer Special