Origami Company Is a Price-Taker and Uses Target Pricing

question 46

Multiple Choice

Origami Company is a price-taker and uses target pricing. Please refer to the following information: With the current cost structure, Origami cannot achieve its profit goals. It will have to reduce either the fixed costs or the variable costs. Assuming that fixed costs CANNOT be reduced, how much will the target variable costs per year be?

• A)$7,500,000
• B)$12,500,000
• C)$2,500,000
• D)$8,000,000

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Definitions:

Marginal Cost

The added expense incurred upon producing one further unit of a good or service.

Average Cost

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

Short-run Cost Function

A relationship between production cost and output level when one or more inputs are fixed, typically analyzing costs within a time frame that doesn't allow for all factors of production to be adjusted.

Long-run Cost Function

A representation of the total cost associated with the production of goods over time, taking into account all variable and fixed inputs.