The Cost Approach to Pricing

question 5

Multiple Choice

The cost approach to pricing:

• A)is the only defensible pricing mechanism for ethical companies to use.
• B)implies that prices are set based on the cost the market will bear.
• C)means prices are adjusted to ensure the selling organization recoups all costs.
• D)implies that cost analysis is the only technique to be used to negotiate prices.
• E)means prices are set to cover direct costs,contribute to indirect costs,and provide a profit.

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Definitions:

Imperfectly Competitive

Describes a market structure where firms have some degree of market power and can influence prices, unlike in perfect competition.

Purely Competitive

A market structure characterized by a large number of small firms, homogenous products, and easy entry and exit, leading to firms being price takers.

Resource Demand Curve

A graphical representation showing the relationship between the price of a resource and the quantity of the resource demanded by employers.

Marginal Product

The additional output that results from using one more unit of a specific input, holding all other inputs constant.