The Optimal Markup on Variable Cost

question 12

Multiple Choice

The optimal markup on variable cost:

• A) increases as unit sales become more sensitive to price.
• B) decreases as unit sales become more sensitive to price.
• C) is not affected by the price sensitivity of a product's sales volume.
• D) is equal to [ed/(1 + ed)] + 1, where ed is the price elasticity of demand.

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Definitions:

Entire Industry

Refers to all the businesses and organizations involved in the production, distribution, and sale of goods and services within a particular sector.

Demand Curve

A graphical representation showing the relationship between the price of a goods or services and the quantity demanded.

Substitutes

Products or services that can be used in place of each other, satisfying the same needs or wants of the consumer.

Monopolist

A single seller in a market who has significant control over the entire supply of a good or service, and thus can influence price.