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Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve.  For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.
Which of the following is supported by the information given in the passage?
  • a)
    Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.
  • b)
    The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.
  • c)
    As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced. 
  • d)
    Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.
  • e)
    Setting the price close to the marginal cost is sometimes a question of relative benefit.
Correct answer is option 'E'. Can you explain this answer?
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Verified Answer
Marginal analysis is an important decision-making tool in the business...
Passage Analysis 
 
Summary and Main Point
Since this is a Global Inference question, we cannot pre-think on specific lines. However, we must keep in mind that four out of the five given answer choices will not follow from what is stated in the passage; these answer choices are INCORRECT. Select the answer choice that is bolstered by specific facts/ideas mentioned in the passage. 
Answer Choices
A
Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.
Incorrect: Opposite
This choice makes a statement that goes against the information given in the passage. The passage clearly states that companies are likely to price their product close to the marginal cost in period of poor sales- when the demand has waned (declined).
B
The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.
Incorrect: Inconsistent
The passage states that the normal selling price is slashed down when the demand is low and is set close to the marginal cost of the product. So, this comparison is irrelevant as it is the normal price that is then set close to the marginal cost.
C
As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced. 
Incorrect: Out of Scope
There is no mention of the concept of economies of scale in the passage.
D
Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.
Incorrect: Out of Scope
The author does not give us any information to predict what the companies are likely to do in the given situation
E
Setting the price close to the marginal cost is sometimes a question of relative benefit.
Correct
This information is given to us in the example given at the end of the passage. The author cites the example of a firm that slashes down its normal price from $2 to $1.10 (closer to the marginal cost) because as per the author, the incremental profit of 10 cents from the transaction is better than no sale at all.
 
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Most Upvoted Answer
Marginal analysis is an important decision-making tool in the business...
Passage Analysis 
 
Summary and Main Point
Since this is a Global Inference question, we cannot pre-think on specific lines. However, we must keep in mind that four out of the five given answer choices will not follow from what is stated in the passage; these answer choices are INCORRECT. Select the answer choice that is bolstered by specific facts/ideas mentioned in the passage. 
Answer Choices
A
Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.
Incorrect: Opposite
This choice makes a statement that goes against the information given in the passage. The passage clearly states that companies are likely to price their product close to the marginal cost in period of poor sales- when the demand has waned (declined).
B
The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.
Incorrect: Inconsistent
The passage states that the normal selling price is slashed down when the demand is low and is set close to the marginal cost of the product. So, this comparison is irrelevant as it is the normal price that is then set close to the marginal cost.
C
As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced. 
Incorrect: Out of Scope
There is no mention of the concept of economies of scale in the passage.
D
Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.
Incorrect: Out of Scope
The author does not give us any information to predict what the companies are likely to do in the given situation
E
Setting the price close to the marginal cost is sometimes a question of relative benefit.
Correct
This information is given to us in the example given at the end of the passage. The author cites the example of a firm that slashes down its normal price from $2 to $1.10 (closer to the marginal cost) because as per the author, the incremental profit of 10 cents from the transaction is better than no sale at all.
 
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Community Answer
Marginal analysis is an important decision-making tool in the business...
Passage Analysis 
 
Summary and Main Point
Since this is a Global Inference question, we cannot pre-think on specific lines. However, we must keep in mind that four out of the five given answer choices will not follow from what is stated in the passage; these answer choices are INCORRECT. Select the answer choice that is bolstered by specific facts/ideas mentioned in the passage. 
Answer Choices
A
Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.
Incorrect: Opposite
This choice makes a statement that goes against the information given in the passage. The passage clearly states that companies are likely to price their product close to the marginal cost in period of poor sales- when the demand has waned (declined).
B
The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.
Incorrect: Inconsistent
The passage states that the normal selling price is slashed down when the demand is low and is set close to the marginal cost of the product. So, this comparison is irrelevant as it is the normal price that is then set close to the marginal cost.
C
As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced. 
Incorrect: Out of Scope
There is no mention of the concept of economies of scale in the passage.
D
Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.
Incorrect: Out of Scope
The author does not give us any information to predict what the companies are likely to do in the given situation
E
Setting the price close to the marginal cost is sometimes a question of relative benefit.
Correct
This information is given to us in the example given at the end of the passage. The author cites the example of a firm that slashes down its normal price from $2 to $1.10 (closer to the marginal cost) because as per the author, the incremental profit of 10 cents from the transaction is better than no sale at all.
 
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Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is stated in the passage?

Read the passage and answer the question given below.In the year 2011 real estate agents and brokers received more than $100 billion in commissions on sales of residential and commercial property. The majority of that sum came in the form of the standard 6 percent charged on the sale of residential homes: 3 percent to the agent representing the buyer, and 3 percent to the agent representing the seller. This 6 percent arrangement has been the prevailing form of compensation in agented real estate transactions for decades. There is evidence, however, that the standard 6 percent commission may soon become a thing of the past.Real estate agents provide a number of services to their clients, but the most indispensable services they provide are those related to the control of information. Most clients can handle negotiations themselves, and advice on inexpensive measures to increase the value of a home—e.g. a fresh coat of paint, reduce clutter—are well known, but people not in the real estate business have generally not had access to sufficient information to determine the optimum price for their homes, nor have they been able to access the information networks used by brokers to advertise the availability of a home to the widest audiences. The most significant of these is the MLS network; only a licensed agent can list a home for sale on the MLS network.The transformation of information transfer through the Internet, however, is loosening the control that agents have over real estate information. Consumers can quickly find on the Internet, for example, the offering price and actual sales prices of most homes in their region for the last several years, and in most regions they can receive free access to essentially the same real estate listings that agents use when helping clients find homes. The ease of listing homes on the Internet, moreover, is making the process of selling a home far easier than it was in the past. With a digital camera and access to the MLS listing site, a seller’s agent can have a home listed to a wide audience in under an hour’s time.The consequences of the simplification of real estate information transfer are that a large number of consumers are questioning whether agents truly deserve a 6 percent commission. Increasingly, agents are willing to accept a commission of 5 or 4.5 percent, and some are willing to buy or sell homes for a flat fee. A number of Internet services have sprung up that allow homeowners to list their homes on MLS for less than $1,000, a fraction of the price they would pay for a commission to an agent.Q.If the implications suggested by the passage are correct, and if the average number and value of homes sold over the next five years remain approximately the same as in 2011, which of the following can be properly inferred about the real estate business in five years?

A translation invariably reflects the writing style of the translator. Sometimes when a long document needs to be translated quickly, several translators are put to work on the job, each assigned to translate part of the document. In these cases, the result is usually a translation marked by different and often incompatible writing styles. Certain computer programs for language translation that work without the intervention of human translation can finish the job faster than human translators and produce a stylistically uniform translation with an 80 percent accuracy rate. Therefore, when a long document needs to be translated quickly, it is better to use a computer translation program than human translators.Which one of the following issues would be LEAST important to resolve in evaluating the argument?

Musical composers have generally made their most significant contributions to the musical canon before they reached the age of thirty. It is commonly believed that this is the case because aging brings about a loss of cognitive ability and creative capacity. However, a study pointed out that a disproportionately large number of those composers who made their most significant contributions to the canon after the age of thirty became musicians at an older age than is generally the case. Since by the age of thirty many composers have been engaged as musicians for a decade or more, these findings suggest that the real reason why musicians over thirty rarely make significant contributions to the musical canon is not that they have aged but rather that they have spent too much time as musicians.In the argument above, the two portions in boldface play which of the following roles?

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Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is supported by the information given in the passage?a)Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.b)The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.c)As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.d)Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.e)Setting the price close to the marginal cost is sometimes a question of relative benefit.Correct answer is option 'E'. Can you explain this answer?
Question Description
Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is supported by the information given in the passage?a)Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.b)The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.c)As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.d)Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.e)Setting the price close to the marginal cost is sometimes a question of relative benefit.Correct answer is option 'E'. Can you explain this answer? for GMAT 2024 is part of GMAT preparation. The Question and answers have been prepared according to the GMAT exam syllabus. Information about Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is supported by the information given in the passage?a)Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.b)The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.c)As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.d)Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.e)Setting the price close to the marginal cost is sometimes a question of relative benefit.Correct answer is option 'E'. Can you explain this answer? covers all topics & solutions for GMAT 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is supported by the information given in the passage?a)Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.b)The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.c)As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.d)Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.e)Setting the price close to the marginal cost is sometimes a question of relative benefit.Correct answer is option 'E'. Can you explain this answer?.
Solutions for Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is supported by the information given in the passage?a)Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.b)The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.c)As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.d)Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.e)Setting the price close to the marginal cost is sometimes a question of relative benefit.Correct answer is option 'E'. Can you explain this answer? in English & in Hindi are available as part of our courses for GMAT. Download more important topics, notes, lectures and mock test series for GMAT Exam by signing up for free.
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Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is supported by the information given in the passage?a)Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.b)The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.c)As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.d)Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.e)Setting the price close to the marginal cost is sometimes a question of relative benefit.Correct answer is option 'E'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is supported by the information given in the passage?a)Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.b)The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.c)As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.d)Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.e)Setting the price close to the marginal cost is sometimes a question of relative benefit.Correct answer is option 'E'. Can you explain this answer?, a detailed solution for Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is supported by the information given in the passage?a)Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.b)The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.c)As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.d)Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.e)Setting the price close to the marginal cost is sometimes a question of relative benefit.Correct answer is option 'E'. Can you explain this answer? has been provided alongside types of Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is supported by the information given in the passage?a)Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.b)The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.c)As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.d)Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.e)Setting the price close to the marginal cost is sometimes a question of relative benefit.Correct answer is option 'E'. Can you explain this answer? theory, EduRev gives you an ample number of questions to practice Marginal analysis is an important decision-making tool in the business world. Pricing decisions tend to heavily involve analysis regarding marginal contributions to revenues and costs. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. In the marginal analysis of pricing decisions, if marginal revenue, the increase in revenue from the sale of an additional unit of output, is greater than marginal cost at some level of output, marginal profit is positive, and, therefore, a greater quantity should be produced. Alternatively, if marginal revenue is less than the marginal cost, marginal profit is negative and a lesser quantity should be produced. Accordingly, firms tend to use this analysis to increase their production until marginal revenue equals marginal cost, and then charge a price which is determined by the demand curve. For instance, businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price of $2.00, the firm selling the item might wish to lower the price to $1.10 - if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Which of the following is supported by the information given in the passage?a)Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.b)The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.c)As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.d)Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.e)Setting the price close to the marginal cost is sometimes a question of relative benefit.Correct answer is option 'E'. Can you explain this answer? tests, examples and also practice GMAT tests.
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