Which two considerations are highlighted when deciding on a selling price?

Which two considerations are highlighted when deciding on a selling price?

• A. Whether to base price on full cost only.
• B. Whether to use a markup on cost only.
• C. Whether the price should be based on full or marginal cost and whether pricing uses a markup on cost or a margin on selling price.
• D. Whether to set price as a fixed amount above variable cost.

Answer: (C)

Pricing decisions hinge on two choices: which cost base to use and which pricing calculation to apply. You can base the price on full cost (including fixed costs) or on marginal cost (only variable/incremental costs), depending on the decision context. Then you convert that cost into a price either by applying a markup on cost (adding a percentage to cost) or by aiming for a margin on the selling price (profit as a percentage of the selling price). These two dimensions capture the essential considerations, and together they determine the final selling price. For example, with a cost of 100: - Markup on cost of 20% gives a price of 120. - Margin on selling price of 20% means solving P - 100 = 0.2P, which gives P = 125. The other options focus on only one dimension or rely on a single, narrower method, missing the two-sided nature of pricing decisions.

Pricing decisions hinge on two choices: which cost base to use and which pricing calculation to apply. You can base the price on full cost (including fixed costs) or on marginal cost (only variable/incremental costs), depending on the decision context. Then you convert that cost into a price either by applying a markup on cost (adding a percentage to cost) or by aiming for a margin on the selling price (profit as a percentage of the selling price). These two dimensions capture the essential considerations, and together they determine the final selling price.

For example, with a cost of 100:

• Markup on cost of 20% gives a price of 120.

• Margin on selling price of 20% means solving P - 100 = 0.2P, which gives P = 125.

The other options focus on only one dimension or rely on a single, narrower method, missing the two-sided nature of pricing decisions.