4 mins 55 sec... All correct.
MP -
Marginal analysis is an important decision-making tool in the business world. In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output, i.e. the marginal cost of producing the unit, is known as marginal-cost pricing. Marginal profit decides the level of output & also the demand - if demand is low, company will bring down the cost such that marginal profit is minimum. However, if marginal profit is negative,company will lower output ( as it is a loss to continue at the earlier level)
Q1 -
Need to understand the MP for this. Also, the tone of the author is important.
1. Which of the following best describes the primary purpose of the author?A. To explain how companies change prices, using the market conditions as an indicator
Detailed - plus "companies" are not shown to do anything as such just a business tool is explainedB. To discuss the use of a business tool in a particular context
Correct - also the tone of author is neutral and hence it is correct to use the term "discuss"C. To establish the supremacy of a price-setting tool in the business world
Pure non-senseD. To advocate for the use of a business concept in determining prices
TRAP - "advocate" is too strong a word as the author is showing a neutral toneE. To discuss the various tools available to a company to alter the prices of its products during lean periods
BS option- only one tool is discussedQ2 -
INFERENCE TYPE - need to ensure 100% support for statement by passage2. Which of the following is supported by the information given in the passage?
A. Marginal cost pricing is employed when even though the demand is on the rise, the sales are not.
Opposite is trueB. The normal selling price of a product is not as affected by the demand of the product as the price set close to the marginal cost of the product.
Opposite again!C. As companies realize economies of scale, the marginal cost of producing decreases with each extra unit produced.
Real world trap - this could be true in the real world but the passage does not mention this explicitelyD. Companies are likely to shut down when they cannot even command a price that is identical to the marginal cost of their product.
Opposite - companies will bring down outputE. Setting the price close to the marginal cost is sometimes a question of relative benefit.
Correct - mentioned in the passage when the $2 brought down to $1.10 example is givenQ3 -
Detail type question also - inference type as we are looking for something explicitely mentioned in the passage but being paraphrased by the option choices
3. Which of the following is stated in the passage?A. The level of output produced is sometimes determined by taking in to account the difference between marginal revenue and marginal cost
Bingo! - This is the Main point of the passage and is mentioned in the first part itselfB. Marginal analysis is the most important tool through which the pricing of a product is decided.
"Most important" too extreme given the tone of the author C. The normal selling price of a product is usually close to the marginal cost of the product.
Opposite - already used in q1D. Profit from an additional unit of output decreases with every increase in production.
Not true - depends on the demand as well as the current level of outputE. Marginal cost pricing is a technique used in the short run rather than in the long run.
Not mentioned in the passageBest,
Gladi
_________________
Regards,
Gladi
“Do. Or do not. There is no try.” - Yoda (The Empire Strikes Back)