CA Foundation · Business Economics · Price Determination in Different Markets
A firm sets the price of a product by adding a fixed percentage margin to its average total cost at normal output. This pricing practice is known as:
The practice is cost-plus, or full-cost, pricing. The firm calculates average total cost at normal output and adds a fixed percentage markup to arrive at the selling price. It differs from penetration, predatory and peak-load pricing, which depend on market-entry goals, rival elimination or demand timing.
- APenetration pricing
- BCost-plus (full-cost) pricingCorrect
- CPredatory pricing
- DPeak-load pricing
Explanation
Cost-plus or full-cost pricing computes the average cost at normal output and adds a markup for profit. Penetration pricing sets a low initial price to win market share, predatory pricing sets price below cost to eliminate rivals, and peak-load pricing charges more in periods of high demand.
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