Question

When tomas learned that the inventory levels were still at 90%, he instructed the sales team to sell the product 35% lower than the cost to produce the product in order to bring the inventory down to acceptable levels. this demonstrates the idea of ____

A. dumping price
B. elasticity predatory
C. pricing
D. arbitrage

Answer 1

Tomas's instruction to sell at 35% below production cost to decrease inventory levels is an example of predatory pricing, a strategy used to undercut competition, which may have implications for market fairness and legal scrutiny.

Step-by-step explanation:

The practice that Tomas is instructing his sales team to carry out is akin to predatory pricing. This strategy involves setting prices significantly lower than the production cost with the objective of driving out competition in the short term. After the competition is weakened or eliminated, prices can then potentially be raised without as much competitive pressure. This approach is considered a form of anti-competitive behavior and can raise questions in terms of legality and fairness in the market.

In the context given, Tomas's approach does not necessarily encapsulate the broader context of dumping, which often refers to international trade practices. However, the strategy of selling below the cost to reduce inventory levels, particularly if it involves harming competitors, aligns with the definition of predatory pricing as discussed in economic theory and in the monopoly chapter.