Final answer:
Price differentiation, also known as price tiering, is a strategy where organizations set different prices for selected groups of merchandise to cover the cost of production and achieve the desired profit, while catering to different market segments.
Step-by-step explanation:
When an organization sets a number of prices for selected groups of merchandise, this strategy is commonly known as price differentiation or price tiering. This approach takes into account factors such as the cost of production and the desired profit, which are the fundamentals in determining the price points for different products or product lines. Companies implement this strategy to cater to various consumer segments and to maximize potential market share and revenue by charging different prices for items that may serve different consumer needs or offer varying levels of value.
Quantity Supplied can also be a consideration in price setting, as the quantity of product available can influence the pricing strategy. For example, limited availability can justify a higher price point. In essence, businesses aim to cover the production costs and ensure the desired profit margin through strategic pricing.