The Price a Firm Charges for a Good or Service

question 12

Multiple Choice

The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because

• A) the customer's disposable income is significantly higher than what the market demands.
• B) the customer captures some of that value in the form of a consumer surplus.
• C) regulatory mechanisms ensure that the customer is not overcharged for products/services.
• D) marketers implement psychological pricing tactics to ensure that customers perceive the prices to be low.

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Definitions:

Variable Costs

Charges that adjust directly in response to the quantity of production or output.

Average Total Cost

The total cost divided by the quantity of output produced, representing the cost per unit of output.

Marginal Cost

The outgoings associated with the production of one more unit of a product or service.

Average Variable Cost

The total variable costs divided by the quantity of output produced; it varies with the level of output.