Question

Which of the following is most likely to be considered when using a cost-based pricing strategy?

A) competitors' product-price positioning

B) customer performance needs

C) company product-price positioning

D) price sensitivity in the market

E) desired profit margin

Answer 1

In cost-based pricing strategy, the desired profit margin is the key factor considered. This strategy involves adding a markup to production costs to ensure profits. For a monopolistic competitor, profits or losses can be determined by comparing the price to average total costs.

Step-by-step explanation:

When using a cost-based pricing strategy, the factor most likely to be considered is E) the desired profit margin. This strategy involves determining the cost of production for a product and then adding a markup to ensure that all costs are covered and a satisfactory profit margin is achieved.

In the context of a monopolistic competitor, determining if they will earn profits or experience losses involves assessing whether the price charged covers the average total cost including the desired profit margin. If the price is above the average total cost, the firm will earn profits. If the price is below the average total cost, the firm will incur losses.