Decreasing selling prices in order to secure higher sales volumes or market shares:
A) Will always generate higher sales volumes and market shares.
B) Can have a negative impact on a firm's profitability.
C) Should not usually affect profitability.
D) Should not usually affect contribution margins.
E) Should not usually affect sales mix.

Question

Quizplus · Accepted Answer

Decreasing selling prices can reduce a firm's profitability if the cost of producing the product remains constant or if the reduction in price is greater than the increase in sales volume. This is because the cost per unit remains the same, but the revenue per unit decreases, leading to a decrease in profit margin.

Decreasing Selling Prices in Order to Secure Higher Sales Volumes