A firm ships its product to a foreign subsidiary and charges a price that may increase import duties but lower the income taxes paid by the subsidiary. The most likely reason for these effects is that the:
Answer(s): D
A transfer price is the price charged by one subunit of a firm to another.When the subsidiary- buyer is in a foreign country, the higher the transfer, the higher the potential tariffs. However, the tax levied on a subsequent sale by the subsidiary will be lower because of its higher acquisition cost.
A global firm establishes a cost-based price for its product in each country. The most likely negative outcome is that this pricing strategy will:
Answer(s): A
A firm may set a cost-based price in each market with a standard markup. In a region or country where costs are high, this strategy may result in prices that are too high to be competitive within the local market.
A firm sells its product in a foreign market for a much higher price than in its home market.The reason is most likely:
Price escalation is caused by an accumulation of additional costs, e.g., currency fluctuations; transportation expenses; profits earned by importers, wholesalers, and retailers; and import duties.
Setting the introductory price of a new product relatively high is:
Answer(s): B
Price skimming is the practice of setting an introductory price relatively high to attract buyers who are not concerned about price and to recover research and development costs rather quickly. The opposite approach is to use penetration pricing, which involves setting a relatively low price to gain deep market penetration quickly.
Price skimming involves:
Price skimming is used when a new product is introduced at the highest price possible given the benefits of the product. For market skimming to work, the product must appear to be worth its price, the costs of producing a small volume cannot be so high that they eliminate the advantage of charging more, and competitors cannot enter the market and undercut the price.
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