Consider a new business that invests $20 million into a plant to manufacture loaves of bread. The market for bread is say around 100 million loaves and the new firm expects that it will be able to obtain a market share of around 5%. At that level of production, the total cost of production is $10 million. Let us say that it targets a 20% return on its investment. What should the price of a loaf of bread be? Use the principle of target rate of return pricing. If the mark-up rate is 10% what

Consider a new business that invests $20 million into a plant to manufacture loaves of bread. The market for bread is say around 100 million loaves and the new firm expects that it will be able to obtain a market share of around 5%. At that level of production, the total cost of production is $10 million. Let us say that it targets a 20% return on its investment. What should the price of a loaf of bread be? Use the principle of target rate of return pricing. If the mark-up rate is 10% what

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter31: Capital Markets

Section: Chapter Questions

Problem 14E

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Question

Consider a new business that invests $20
million into a plant to manufacture loaves of
bread. The market for bread is say around 100
million loaves and the new firm expects that it
will be able to obtain a market share of
around 5%. At that level of production, the
total cost of production is $10 million. Let us
say that it targets a 20% return on its
investment. What should the price of a loaf of
bread be? Use the principle of target rate of
return pricing. If the mark-up rate is 10% what
will the full-cost price be?

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