Final answer:
Regular use of relevant cost pricing for special orders can lead to a decrease in long-term profitability by undermining standard pricing and causing customer confusion. Firms must balance costs and consider the broader market and menu costs when setting prices.
Step-by-step explanation:
The question concerns the effects of regular use of relevant cost pricing in special-order decisions on a firm's normal pricing policies. Engaging repeatedly in special-order decision-making at prices that only cover the relevant costs can lead to a decrease in the firm's long-term profitability. This happens because such pricing strategies can undercut the firm's standard pricing policies, leading to inconsistent pricing structures, and potentially confusing or alienating customers who may perceive prices as arbitrary or unfair. Furthermore, it has broader implications in terms of creating internal misalignment and potentially sacrificing the benefits of a carefully calibrated market strategy.
Firms that understand the long-run perspective of their cost structure aim to balance both fixed and variable costs to arrive at an average total cost, average variable cost, and marginal cost that informs their pricing strategies. Strategic pricing must consider competitive analysis, customer reactions, and menu costs associated with changing prices, which include updating marketing and sales materials and maintaining customer goodwill.