Question

Pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for the company's efforts and risks.

a. cost-based
b. skimming
c. fixed cost
d. value-based
e. variable

Answer 1

The question refers to a cost-based pricing strategy that takes into account production costs and desired profit to set product prices. Additionally, fixed and variable costs are discussed in terms of their role in the short-run production decisions.

Step-by-step explanation:

Pricing is a critical component in the business field, involving strategies that companies use to set the prices of their products. The description provided indicates a cost-based pricing strategy. This approach considers all the costs of production, distribution, and selling, along with a fair return on the company's efforts and risks.

Furthermore, in the short-run perspective of a firm's total costs, we recognize fixed costs, which do not change with output levels and are considered sunk costs, and variable costs, which fluctuate according to the production level and often show diminishing marginal returns.