The Marketing Department at Hi- Fi Electronics Has Determined That

question 73

Multiple Choice

The marketing department at Hi- Fi Electronics has determined that there is a demand for a new small appliance which would likely sell for $36. Hi- Fi Electronics currently produces a similar product for $38, using a full cost approach. Hi- Fi Electronics would like to earn a 20% profit on the new appliance. The target cost of the new appliance is:

• A) $28.80
• B) $38.00
• C) $36.00
• D) $30.00

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Definitions:

Nonexcludable

A characteristic of public goods where it is not possible to prevent individuals from using the good or service, regardless of whether they have paid for it.

Free-rider Problem

A situation in which some individuals benefit from resources or services without paying for them, leading to underprovision of those goods or services.

Marginal Private Benefit

The additional benefit received by the consumer or producer from consuming or producing one more unit of a good or service.

Marginal Social Cost

The additional cost imposed on society as a whole from producing one more unit of a good or service.