Final answer:
True, the pricing strategy involves considering the demand for a product and the costs involved in producing it to set a final price that includes a desired profit margin.
Step-by-step explanation:
True, the strategy that considers the demand for the product alongside the cost of producing it is indeed known as the pricing strategy. The process of setting prices involves taking into account the cost of production and adding the desired profit margin to determine the final price point for a product or service. A firm must consider the cost of all inputs including materials, labor, and overhead when calculating production costs. Furthermore, market demand influences how much consumers are willing to pay. Therefore, a balanced pricing strategy should reflect both cost considerations and consumer demand to ensure a competitive and profitable price point.
When the cost of production increases, as illustrated by the scenario where cheese becomes $0.75 more expensive per pizza, the firm will typically raise its selling price by the increased cost amount to maintain its profit margin. This relationship between production costs and pricing is a fundamental aspect of supply-side economics and showcases how production costs directly influence the final price consumers pay.