If demand is taken into account, firms that use cost-plus pricing can adjust price by
A)letting sales fall, but hold the markup constant if demand falls.
B)lowering markups on price-elastic goods and raising markups on price-inelastic goods.
C)raising markups on price-elastic goods and lowering markups on price-inelastic goods.
D)letting sales rise, but hold the markup constant if demand rises.

Question

Quizplus · Accepted Answer

Firms that use cost-plus pricing can adjust prices based on demand by lowering markups on price-elastic goods (i.e. goods where demand is very sensitive to changes in price) and raising markups on price-inelastic goods (i.e. goods where demand is not very sensitive to changes in price). This allows the firm to remain competitive in the market while still ensuring a profit margin. Letting sales fall or rise while holding the markup constant does not take into account demand, and therefore may not be effective in maximizing profits.

If Demand Is Taken into Account, Firms That Use Cost-Plus