Final answer:
Cost-based pricing is important because it relies on readily available cost data, results in defensible pricing strategies, and is essential for ensuring that revenues exceed costs for business sustainability.
Step-by-step explanation:
Cost-based pricing has traditionally been important because it provides a straightforward approach for setting prices based on the cost of producing goods or services. For a business, understanding and breaking down its total costs into fixed costs, variable costs, average total costs, and average variable costs is crucial. These measures offer valuable insights into how a firm can set prices in a way that covers costs and generates profit. Additionally, the study of elasticities is significant in tailoring pricing strategies to maximize revenue in both the short and long term.
The correct answer to the student's question is:d. of all of the above. Cost-based pricing is a defendable strategy because cost data are typically readily available and verifiable. Moreover, a firm needs to ensure its revenues exceed costs if it is to remain viable over time. Understanding these principles and how they relate to pricing within various market structures is essential for a firm's long-term production and profitability strategies.