What is the critical assumption when using target profit pricing?
A)A higher average price will usually cause the demand to fall.
B)A higher average price will always cause the demand to fall.
C)Profit is relative to the current value of the dollar so this form of pricing is extremely risky.
D)A higher average price will not cause the demand to fall.
E)If the average price is increased, all a firm's competitors will do the same.

Question

Quizplus · Accepted Answer

The critical assumption when using target profit pricing is that a higher average price will not cause the demand to fall. This is because the target profit pricing method sets the price based on the desired profit level, rather than the perceived value of the product in the market. Therefore, the assumption is that customers will continue to be willing to pay the higher price without reducing their demand for the product.

What Is the Critical Assumption When Using Target Profit Pricing