Question

The percentage markup A. pricing method is not followed by most of the firms in the U.S. B. does not change depending on price elasticity of demand. C. is higher on products that have inelastic demand and is lower on products that have elastic demand. D. is lower on products that have inelastic demand and is higher on products that have elastic demand.

Answer 1

Answer: Option (C) is correct.

Explanation:

The percentage markup is the difference between the selling price of a commodity and the cost of producing it.

Suppose there is a product whose selling price is $150 and the cost of producing the product is $100.

Therefore, the percentage markup = $\frac{150 - 100}{100} \times 100$

                                                           = 50%

So, if the demand of a product is inelastic then the firm can charge higher prices which results in higher mark up over cost. Alternatively, if if the demand of a product is elastic then the firm can charge lower prices which results in lower mark up over cost.