Salvatore’s Chapter 12:
DQ7) False. Quantity discounts are a form of price discrimination. The incentive for this is that the firm can increase its total revenue and profits for a given level of sales and total costs by practicing price discrimination. Larger purchases generate larger revenues, but it is still a form of price discrimination because the single unit of sale price is being adjusted compared indiscriminately compared to a larger quantity of the same units combined.
DQ11) a). The transfer price of an intermediate product that has no external market for the intermediate product is determined by the marginal cost of production. b). The transfer price of an intermediate product that has a perfectly competitive external market for the intermediate product is determined by the external competitive price for the intermediate product. c). The transfer price of an intermediate product that has an imperfectly competitive external market for the for the product exists when the transfer price of the intermediate product is given at the point at which the net marginal revenue of the marketing division of the firm is equal to the marginal cost of the production division at the best total level of output of the intermediate product, and the price charged in the external market is given on the external demand curve.
DQ13) The advantages of cost plus pricing is that it leads to approximately the profit-maximizing price because firms usually apply higher markups for products facing less elastic demand than for products with more elastic demand. p This involves calculating the average variable cost of producing the normal or standard level of output , adding an average overhead charge so as to get the fully allocated average cost for the product. The disadvantages for cost-plus pricing is that it may be very difficult to