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$5.00 5. Many retail companies use mark up pricing—setting price some percentage...

  • From Economics: General-Economics
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  • Due on Dec. 09, 2011
  • Asked on Nov 25, 2011 at 12:07:33PM
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mit2008
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Q:

5. Many retail companies use mark up pricing—setting price some percentage above variable cost (such as 50% above cost).

a. Why do so many firms use this?

b. Under what conditions would it be profit maximizing?

c. How should it be implemented in order to make it profitable?

d. How should set the mark up?

 

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  • Posted on Nov. 26, 2011 at 12:36:41AM
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A:
Preview: ... managers have limited knowledge as far as demand and costs are concerned. This additional information is necessary to generate accurate estimates of marginal costs and revenues. However, the process of obtaining this additional information is expensive. Therefore, cost-plus pricing is often considered the most rational approach in maximizing profits. This approach relies on arbitrary costs and arbitrary markups.  Following  are the reasons  why so many  firms use mark up pricing :- Even if a firm handles many products, this approach prov ...
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