Gracius Manufacturing Is Approached by a European Customer to Fulfill

question 82

Multiple Choice

Gracius Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Gracius Manufacturing has a policy of adding a 20% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers:

If the European customer wanted a long-term commitment, and not a one-time-only special order, for supplying this product, calculate the most likely price to be quoted assuming the markup remains the same?

• A) $110
• B) $250
• C) $300
• D) $190

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Definitions:

Marginal Cost

The increase in total cost that arises from producing one additional unit of a product or service.

Maximize Profit

To maximize profit, a firm seeks to increase the difference between its total revenues and total costs through optimal pricing strategies and efficient production.

Marginal Cost

Marginal cost represents the increase or decrease in the total cost of production when the quantity produced is incremented by one unit.

Purely Competitive Firm

A business that operates in a market with many buyers and sellers, where each firm has no control over the market price and produces a homogeneous product.