One Popular Cost-Oriented Pricing Tactic Is Culling Low-Profit Margin Products

question 171

Multiple Choice

One popular cost-oriented pricing tactic is culling low-profit margin products from the product line.Which of the following statements does NOT describe a reason that a marketing manager would want to avoid this tactic?

• A)The tactic focuses special attention on the costs of producing each line and their contribution to overhead.
• B)The loss of one item in the line may reduce the economies of scale.
• C)The image of the rest of the product line may suffer if there is a "hole" in the line.
• D)Other items in the line will now have to cover more fixed costs.

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Definitions:

Marginal Cost

The funds required to produce an extra item of a product or service.

Average Fixed Cost

Fixed production charges (remaining constant irrespective of output size) partitioned by the amount of production.

Average Total Cost

Average total cost is the total cost of production divided by the total quantity produced, representing the cost per unit of output produced.

Marginal Cost

The increase in total cost that arises from an extra unit of production, which is crucial for decision-making on the quantity of production and pricing.