Question

Which of the following is true of firms that follow variable-cost pricing?

A) Firms that follow variable-cost pricing sell their products at lower net prices abroad than they are selling them in the domestic market.
B) This approach to pricing emphasizes that no unit of a similar product is different from any other unit in terms of cost.
C) Variable-cost pricing is suitable when a company has high variable costs relative to its fixed costs.
D) If limited supply exists, a company may follow a variable-cost approach to maximize revenue and to match demand to supply.
E) This approach emphasizes that each unit must bear its full share of the total fixed and variable cost.

Answer 1

Variable-cost pricing is suitable when a company has high variable costs relative to its fixed costs.

Step-by-step explanation:

Variable-cost pricing refers to a pricing strategy where a firm sets the price of its products based on the variable costs incurred in production. Among the options given, option C) is true. Variable-cost pricing is suitable when a company has high variable costs relative to its fixed costs. In this strategy, the price is set in a way that covers the variable costs and contributes towards covering the fixed costs as well.