Cost-plus pricing would be consistent with selecting the profit-maximizing price when
A)it results in a price that causes quantity sold to be where marginal revenue equals marginal cost.
B)a firm has no difficulty estimating its demand curve.
C)consumers value the product beyond its marginal cost.
D)the demand for the firm's product is unit elastic.

Question

Quizplus · Accepted Answer

Cost-plus pricing involves adding a markup to the cost of production in order to determine the final price. This approach may result in a price that is higher or lower than the profit-maximizing price, depending on how the markup is calculated. However, if the markup is set such that the resulting price causes quantity sold to be where marginal revenue equals marginal cost, then the firm will indeed be selecting the profit-maximizing price. Therefore, the correct answer is A. The other choices do not necessarily lead to the selection of the profit-maximizing price.

Cost-Plus Pricing Would Be Consistent with Selecting the Profit-Maximizing Price