Final answer:
Cost management ensures a company's profitability and influences pricing strategies to cover production costs and desired profit margins. Firms must manage costs effectively to remain competitive and avoid exiting the market. Making the least loss-making decision between production continuation or shutdown is crucial when operating below the break-even point.
Step-by-step explanation:
The phrase in question refers to the concept of cost management, which is critical in business for ensuring profitability. When firms set prices, they must account for the cost of production and the desired profit, as mentioned in Figure 3.12 'Setting Prices'. To remain competitive, especially in the face of low-priced imports as suggested, it's crucial that a firm's pricing strategy enables it to cover costs and achieve a profitable margin. Profits are essential for the long-term sustainability of a company. In cases where prices fall below the break-even point, the firm must decide whether to continue operating at a loss or to shut down. The preferable option, as indicated, is the one that results in the least financial loss.
For example, if a firm can produce a good at a lower cost, it may be able to price its products competitively against imports, thus maintaining its market share and profitability. Firms that fail to manage costs effectively might succumb to the pressures of competitive pricing and could eventually exit the market, potentially leading to a scenario where the remaining firms, like importers, have more pricing power and could raise their prices to recoup previous losses.