Which of the following is a definition of predatory pricing?
Answer(s): A
Predatory pricing is the practice of pricing products below cost to destroy competitors. A price is predatory if it is below an appropriate measure of costs, and the seller has a reasonable prospect of recovering its losses in the future through higher prices or greater market share.
Prices vary directly with capacity usage under
Answer(s): B
Under peak-load pricing, prices vary directly with capacity usage. Thus, when idle capacity is available, that is, when demand falls, the price of a product or service tends to be higher given a peak-load pricing approach.
A company uses a target pricing and costing approach. The following is its costs and revenues for the current year:The company intends to increase unit sales to 120, 000 in the next year by reducing the unit price to US $8. If the company is to achieve a unit target operating income of 15%, by what amount must it reduce the full cost per unit?
Answer(s): D
Unit target operating income is US $1.20 15% $8 target price). Thus, the unit target full cost is US $6.80 $8 - $1.20). The current full cost per unit is US $8.50 [$515, 000 cost of goods sold + $335, 000 operating costs excluding production) - 100, 00 units sold], so the necessary reduction in full cost per unit is US $1.70 $8.50 - $6.80).
A situation in which companies conspire to restrict output and set artificially high prices is known as:
Collusive pricing is illegal. It involves two or more competitors conspiring to restrict output and charge artificially high prices.
A pricing strategy that sells combinations of products at a price lower than the combined prices of the individual items is
Answer(s): C
Product-bundle pricing is a strategy to promote items consumers might not otherwise buy by selling combinations of products at a price lower than the prices of the individual items combined.
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