A critical assumption when using target profit pricing is that
A)a higher average price will not cause the demand to fall.
B)a higher average price will usually cause the demand to fall.
C)a higher average price will always cause the demand to fall.
D)profit is relative to the current value of the dollar so this form of pricing is extremely risky.
E)if you increase your average price, all of your competitors will do the same, so being first will be essential.

Question

Quizplus · Accepted Answer

Target profit pricing assumes that a higher average price will not cause the demand to fall. This is because the pricing strategy is based on determining the price that will generate a desired level of profit, given a certain level of expected sales volume. If the demand for the product/service is highly elastic, meaning that a small increase in price would cause a significant decrease in demand, then target profit pricing may not be effective. However, if the demand is relatively inelastic, meaning that a price increase would not significantly reduce sales volume, then the pricing strategy can be successful.

A Critical Assumption When Using Target Profit Pricing Is That