If, at the firm's projected sales level, the marginal cost is $40, the average cost is $50 and the markup is 30 percent, then its selling price is
A)$40.
B)$50.
C)$52.
D)$65.

Question

Quizplus · Accepted Answer

We can use the formula:

Selling price = Marginal cost / (1 - Markup)

Substituting the given values, we get:

Selling price = $40 / (1 - 0.30) = $40 / 0.70 = $57.14 (rounded off to two decimal places)

However, we know that the average cost is $50, which is lower than the calculated selling price of $57.14. This means that the firm is currently making a profit even at the projected sales level, and can afford to lower the selling price while still maintaining a markup.

To find the optimal selling price, we can use the formula:

Selling price = Average cost x (1 + Markup)

Substituting the given values, we get:

Selling price = $50 x (1 + 0.30) = $50 x 1.30 = $65

Therefore, the best choice is D) $65.

If, at the Firm's Projected Sales Level, the Marginal Cost