Using the Following Information:
Drill Quest, Inc $Q = 1,200 - 0.05 P$

Multiple Choice

Using the following information:
Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost. Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand for Drill Quest brand bits produces the following linear demand equation (where Q is the number of bits demanded and P is the price of bits) :
$Q = 1,200 - 0.05 P$
-If Drill Quest wishes to use cost-plus pricing, it can maximize profit by applying a markup of _____ percent on __________.

A) 150 percent; AVC
B) 150 percent; ATC
C) 50 percent; AVC
D) 50 percent; ATC
E) 250 percent; AVC