Which of the following is true regarding price-level policies?
A)Meeting competition is the only sensible policy in monopolistic competition.
B)In an oligopoly situation,pricing "above the market" usually leads to an increase in profit.
C)A firm in pure competition may increase profit by pricing "below the market."
D)Charging a lower price than seeming competitors may not mean that a firm is selling "below the market."
E)None of these answers is correct.

Question

Quizplus · Accepted Answer

When discounters and mass-merchandisers promote their pricing policies with catchy slogans like "guaranteed lowest prices," it may appeal to frugal shoppers.But this does not mean that a firm is selling below the market.It's important to clearly define the relevant target market and competitors.For example,a discounter may offer lower prices but it also offers less expertise from the sales staff,etc.,than a specialty shop,for example.The discounter may appeal to frugal shoppers who compare prices and value among different discounters (who are in the same market).But the specialty shop would appeal to different customers and may not even be a direct competitor,so the specialty shop is not even in the same market with the discounter.Therefore,the lower price by the discounter does not mean that it is selling "below the market."

Which of the Following Is True Regarding Price-Level Policies