​John Learned in Business School That Full-Cost Pricing Is a Very

question 85

Multiple Choice

​John learned in business school that full-cost pricing is a very common cost-oriented pricing procedure,and he planned to use it in setting price for his firm's new software product.However,his boss is not convinced that full-cost pricing is best,and wants John to list both its pluses and minuses in a memo.Which of the following should be included in John's list?

• A)​Full-cost pricing will enable the firm to recover all the costs it incurred while developing the software, including the overhead of running its research and development lab.
• B)​Full-cost pricing will take into account the likely competitive moves of other software developers.
• C)​Full-cost pricing is based on a reliable projection of customer demand in the software market.
• D)​Full-cost pricing does not ensure that overhead costs will be allocated appropriately.
• E)​Full-cost pricing can use only those costs that are directly attributable to a specific output, like production of 1000 units of the software.

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Definitions:

Product Mix

The total range of products that a company offers for sale, encompassing different lines, variations, and services to meet consumer needs.

Marginal Cost

The cost of producing one additional unit of a good or service, which can vary depending on the level of production.

Purely Competitive

A market structure characterized by many buyers and sellers, homogeneous products, and free market entry and exit, leading to price taking by firms.

Purely Competitive

A rephrasing of "Pure Competition," indicating a market structure with many participants, no barriers to entry, and a standard product.