(Last Word) Suppose That a Firm Has "Pricing Power" and Can

question 9

Multiple Choice

(Last Word) Suppose that a firm has "pricing power" and can segregate its market into two distinct groups based on differences in elasticities of demand. The firm might charge

• A) a lower price to the group that has the less elastic demand.
• B) a higher price to the group that has the less elastic demand.
• C) the same price to both groups but include a "free" related product for the group that has an inelastic demand.
• D) the same price to both groups but make it difficult for the group with the more elastic demand to gain access to the product.

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Definitions:

Manufacturing Overhead

All indirect costs associated with the production process, such as utilities, depreciation on equipment, and factory rent.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to products based on a selected activity base such as machine hours or labor hours.

Direct Labor-Hours

The full extent of hours dedicated by employees who are directly integrated into the production process.

Manufacturing Overhead

All indirect factory-related costs incurred during the production process, excluding direct materials and direct labor costs.