When Introducing New Products, Some Companies Use Price Skimming Whereas

question 42

Essay

When introducing new products, some companies use price skimming whereas others use penetration pricing.
Required:
A. Distinguish between price skimming and penetration pricing.
B. Is price skimming a viable alternative for most new products? Explain.

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods or services, leading consumers to replace more expensive items with cheaper alternatives.

Profit-Maximizing Firm

A company that operates with the primary goal of maximizing its profits by adjusting output and pricing.

Marginal Revenue Product

The increased earnings resulting from the utilization of one more unit of either labor or capital.

Wage

The price paid for the use or services of labor per unit of time.