Question

​​​​​​True or false

1. There are no profits below the “price floor,” but profits can still be earned above the “price ceiling.”

2. With “cost-based pricing” product design occurs first, but product design comes last for “value-based pricing.”

3. If Total Cost for a product is $5, and the price is $12, then Total Revenue = $7.

4. The assumption under a “pure competition” market structure is that the seller has little or no control over the price he or she can profitably charge.

5. An unregulated monopoly can charge any price it wants, but there will still be a price floor and a price ceiling to consider before finalizing price.

Answer 1

1) There are no profits below the “price floor,” but profits can still be earned above the “price ceiling.” - False

Price Floor is a price which is normally higher than the market equilibrium price. If a price is higher than the market equilibrium price, there is a higher profit generated than when the price is at the equilibrium price. Price Ceiling is a price which is normally lower than the market equilibrium price. If a price is lower than the market equilibrium price, there is a lower profit generated than when the price is at the equilibrium price.

2) With “cost-based pricing” product design occurs first, but product design comes last for “value-based pricing.” - False

Cost Based Pricing is a type of pricing strategy where the sellers only focus on making a profit by making the price higher than the cost price of the product. Value Based Pricing on the other hand is a type of pricing strategy where the sellers charge the price based on how the customer would value the product. So, in value based pricing the product design comes first rather than cost based pricing since customers would value a product much more when the product design is better than the other products.

3) If Total Cost for a product is $5, and the price is $12, then Total Revenue = $7. - False

Total Revenue = Price * Quantity. Here, since the price is given as $12 price is greater than the total revenue which is not possible since the total revenue is the multiplication of the price and quantity, this statement is false.

4) The assumption under a “pure competition” market structure is that the seller has little or no control over the price he or she can profitably charge. - True

Pure competition is a type of market structure where there is a large number of independent sellers offering similar products in the market and so they have little or no control over the market price that he or she sells in the market and so the sellers are price takers.

5) An unregulated monopoly can charge any price it wants, but there will still be a price floor and a price ceiling to consider before finalizing price. - False

An unregulated monopoly means that the government does not regulate the monopoly and it can do whatever it likes to do. In an unregulated monopoly, the monopolist can charge the price which would maximize his profits and there is no such thing as price floor and a price ceiling which is normally imposed by the government in the case of a regulated monopoly.