If the Explicit Costs to a Firm to Produce a Unit

question 129

Multiple Choice

If the explicit costs to a firm to produce a unit of output are $6 and the firm sells 200,000 units of output for $8 per unit, the accounting profit received by the producer is

• A) $1.2 million.
• B) $850,000.
• C) $1.6 million.
• D) $400,000.

---

Definitions:

Penetration Pricing

A pricing strategy aimed at entering a new market by setting a low price initially to attract customers and gain market share.

Escalator Clause

A section in a contract that provides for price increases if certain, specified conditions occur.

Loss-leader Pricing

A pricing strategy where a product is sold at a loss to attract customers, with the expectation they will make additional purchases of other items at regular prices.

Elastic Demand

Demand for which a given percentage change in price results in an even larger percentage change in quantity demanded.