Question
A firm sells a product for a per unit price of $500. Variable costs per unit are $450. A customer approaches the firm with a
A firm sells a product for a per unit price of $500. Variable costs per unit are $450.
A customer approaches the firm with a request for a special order of 1,200 units. This customer wants a discount because of the size of their order.
A special piece of equipment, worth $5,000, must be purchased to complete the special order. The firm also has limited capacity for the special order. It only has excess capacity to produce 700 units of the special order.
What is the floor for the price that the firm negotiates with the customer?
| a. | $450 per unit | |
| b. | $500 per unit | |
| c. | Price floor is greater than price ceiling. No price is economically feasible. | |
| d. | $475 per unit |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started