Final answer:
The cost-of-ownership method involves setting prices by accounting for all costs associated with possessing a product over its lifetime, including fixed and variable costs, to determine the profit-maximizing price. option a.
Step-by-step explanation:
Using the cost-of-ownership method means setting prices based on all the expenditures that are incurred by possessing the product over its useful life. When firms set prices, they account for various costs including fixed costs, variable costs, and the desired profit margins. These costs form the basis for average total cost, average variable cost, and marginal cost. A firm's pricing strategy may involve calculating the long-term cost of owning a product, including purchase price, maintenance, operating costs, and eventual disposal costs, rather than just the initial purchase price. This total cost of ownership approach impacts the firm's decision on the profit-maximizing quantity to produce and the price to charge.