Using the Following Information:
Drill Quest, Inc $Q = 1,200 - 0.05 P$

question 16

Multiple Choice

Using the following information:
Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost. Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand for Drill Quest brand bits produces the following linear demand equation (where Q is the number of bits demanded and P is the price of bits) :
$Q = 1,200 - 0.05 P$
-If Drill Quest wishes to use cost-plus pricing, it can maximize profit by applying a markup of _____ percent on __________.

• A) 150 percent; AVC
• B) 150 percent; ATC
• C) 50 percent; AVC
• D) 50 percent; ATC
• E) 250 percent; AVC

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Definitions:

Echoic Memory

A subsystem of sensory memory that retains auditory information for a short period after the original sound has ceased.

Selectively Noticing

The cognitive process of focusing attention on certain stimuli or information while ignoring others, often based on personal relevance or importance.

Attention

The process of selectively concentrating on one aspect of the environment while ignoring other things.

Short-term Memory

The capacity for holding, but not manipulating, a small amount of information in mind in an active, readily available state for a short period of time.