Chapter 15: Costs & Prices

Question 1

What did 1998 Alan Blinder’s “Asking About Prices” find?

Answer 1

Firms did not report the U-shaped marginal cost curve, or upward sloping marginal cost curve after MC=MR. The Law of Diminishing Marginal Returns did not appear to be applicable to real life.

Question 2

Costing

Answer 2

Process of estimating cots of production before production actually takes place

Question 3

Depreciating

Answer 3

A way of accounting for the expense of an asset over its lifetime

Question 4

Going Concerns

Answer 4

Organizations expected to continue to exist into the foreseeable future

Question 5

Full Cost Pricing

calculation

Answer 5

P = (ATC)(1 + r)
P = price at which business plans to sell product
ATC = average total (or per unit) cost
r = predetermined markup

Question 6

Target Rate of Return Pricing

calculation

Answer 6

P = (ATC) + ((ROIxIC) / Q)
P = price at which business plans to sell product
ATC = average total (or per unit) cost
ROI = desired return on invested capital
IC = invested capital 
Q = expected quantity of output sold