The president of your firm would like to offer special sale prices to your best

Question

The president of your firm would like to offer special sale prices to your best customers under the following terms: The price will apply only to units purchased in excess of those normally purchased by the customer. The units purchased must be paid for in cash at the time of sale. The total quantity sold under these terms cannot exceed the excess capacity of the firm. The net profit of the firm should not be affected either positively or negatively. Given these conditions, the special sale price should be set equal to the: a. average variable cost. b. average total cost minus the marginal cost. c. sensitivity value of the variable cost. d. marginal cost.

Explanation / Answer

If you don't want any extra profit to come from it, just set it equal to d) marginal cost.

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