Final answer:
Penetration pricing strategies often result in a product being sold at a loss with the aim of quickly attracting customers and increasing market share, making the statement true. It's a risky approach that could lead to losses if not managed properly and can also be influenced by competition and market forces.
Step-by-step explanation:
The question asks whether penetration pricing strategies often mean that a product may be sold at a loss for a certain period of time. The answer is true. Penetration pricing is a strategy where a company sets a lower initial price for its product or service with the intent to attract customers quickly, increase market share, or influence the market. This can sometimes result in the product being sold at a loss initially. The goal is to establish a strong customer base and discourage competition. Over time, the company may raise prices to generate profit, after achieving its initial objectives.
However, penetration pricing is risky, as it could lead to significant losses if the company is unable to raise prices or gain sufficient market share. Also, if imports are sold at extremely low prices, domestic firms may be forced to match these prices resulting in sales below cost. This could lead to a scenario where total revenues are lower than total costs, indicating a loss. Competition from firms with better or cheaper products can reduce a business's profits, potentially driving it out of business. In such cases, the profit-maximizing firm will prefer the quantity of output where total revenues come closest to total costs and thus where the losses are smallest.