Question

Which of the following statements is MOST ACCURATE?

a. Nonprofit organizations are exempt from having to cover the costs of producing and/or marketing their products.
b. Socially responsible corporations should have the pricing constraint of covering all costs of producing and marketing their products, but they should not price their products to earn a profit.
c. Marketers must ensure that firms in their channels of distribution must make an adequate profit or they will be cut off from their customers.
d. Price elasticity of demand makes it virtually impossible for companies to cover all their marketing and production costs at all times.
e. Marketing and production costs are the most difficult and expensive aspect of pricing because they draw so much capital away from other departments in the organization.

Answer 1

The correct answer is c, which states that marketers must make sure all firms in the distribution chain can earn an adequate profit to maintain customer access. In competitive markets, prices usually equate to the marginal costs, accounting for both private and social costs.

Step-by-step explanation:

The most accurate statement is c. Marketers must ensure that firms in their channels of distribution must make an adequate profit or they will be cut off from their customers. This is because businesses must cover not only the private costs of production but also consider the social and environmental costs, which affects the pricing of their products. In a perfectly competitive market, the price of goods tends to equal the marginal cost of production, reflecting both firm's costs and broader social costs.

Companies in a competitive market do not have the power to set prices above the equilibrium determined by market supply and demand. Consequently, these firms must be efficient to survive, which includes having a supply chain capable of generating profit for all parties involved. Price elasticity of demand can indeed affect the ability to cover costs but does not make it 'virtually impossible' as suggested by option d; rather, it shapes the strategy a business might use to set prices.