The extra amount charged by a business on top of its unit costs of production in order to earn a positive profit margin?

The extra amount charged by a business on top of its unit costs of production in order to earn a positive profit margin?

• A. Penetration pricing
• B. Price
• C. Mark-up
• D. Price elasticity of demand (PED)

Answer: (C)

The key idea here is mark-up—the amount added to the cost of producing a unit to set a selling price that earns a positive profit margin. It’s the extra bit of money a business adds on top of the unit cost to make a profit on each sale. For example, if a product costs 10 to produce and the business applies a 60% mark-up, the price would be 10 + (0.60 × 10) = 16. That 6 represents the profit built into the price per unit, before considering other expenses. Mark-up is a cost-based way to price, distinguishing it from the final selling price itself, which is what customers actually pay after the pricing decision. It’s also different from price elasticity of demand, which looks at how quantity demanded responds to price changes, not how the price is formed from costs. And it’s not about a pricing strategy like penetration pricing (which aims to set a low price to gain market share); it’s about the basic mechanism of adding to cost to ensure profit on each unit.

The key idea here is mark-up—the amount added to the cost of producing a unit to set a selling price that earns a positive profit margin. It’s the extra bit of money a business adds on top of the unit cost to make a profit on each sale. For example, if a product costs 10 to produce and the business applies a 60% mark-up, the price would be 10 + (0.60 × 10) = 16. That 6 represents the profit built into the price per unit, before considering other expenses.

Mark-up is a cost-based way to price, distinguishing it from the final selling price itself, which is what customers actually pay after the pricing decision. It’s also different from price elasticity of demand, which looks at how quantity demanded responds to price changes, not how the price is formed from costs. And it’s not about a pricing strategy like penetration pricing (which aims to set a low price to gain market share); it’s about the basic mechanism of adding to cost to ensure profit on each unit.