The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

-When firms use cost-plus pricing in a market,
A)each firm determines its price based on other firms' costs and prices.
B)it may appear as though firms are colluding in price when they actually are not.
C)prices of different firms diverge widely.
D)each firm falls short of maximizing profit as they charge the same price irrespective of their costs.
E)each firm sells only to its most-favored customer.

Question

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
 
-When firms use cost-plus pricing in a market,
A)each firm determines its price based on other firms' costs and prices. 
B)it may appear as though firms are colluding in price when they actually are not. 
C)prices of different firms diverge widely. 
D)each firm falls short of maximizing profit as they charge the same price irrespective of their costs. 
E)each firm sells only to its most-favored customer.

Quizplus · Accepted Answer

Cost-plus pricing can lead to similar pricing among firms, which might give the appearance of collusion even though each firm independently bases its price on its own costs plus a markup. This method does not necessarily involve coordination or agreement on prices among firms.

The Table Below Shows the Payoff (Profit) Matrix of Firm