Questions

Q12.1 What is markup pricing?

Q12.2 Develop and explain the relation between the markup-on-cost and the markup-on-price formulas.

Q12.3 Identify and interpret the relation between the optimal markup on cost and the point price elasticity of demand.

Q12.4 Illustrate the relation between the optimal markup on price and the point price elasticity of demand.

Q12.5 "One of the least practical suggestions that economists have offered to managers is that they set marginal revenues equal to marginal costs." Discuss this statement.

Q12.6 "Marginal cost pricing, as well as the use of incremental analysis, is looked upon with favor by economists, especially those on the staffs of regulatory agencies. With this encouragement, regulated industries do indeed employ these rational techniques quite frequently. Unregulated firms, on the other hand, use marginal or incremental cost pricing much less frequently, sticking to cost-plus, or full-cost, pricing except under unusual circumstances. In my opinion, this goes a long way toward explaining the problems of the regulated firms vis-à-vis unregulated industry." Discuss this statement.

Q12.7 What is price discrimination?

Q12.8 What conditions are necessary before price discrimination is both possible and profitable? Why does price discrimination result in higher profits?

Q12.9 Discuss the role of common costs in pricing practice.

Q12.10 Why is it possible to determine the marginal costs of joint products produced in variable proportions but not those of joint products produced in fixed proportions?

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