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

-The most-favored customer is one who:
A)buys a firm's product regularly.
B)is an acquaintance of the owner of a firm.
C)is guaranteed to receive the lowest price for a product.
D)spends the maximum amount of money on a firm's product.
E)has a high purchasing power.

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
 
-The most-favored customer is one who:
A)buys a firm's product regularly. 
B)is an acquaintance of the owner of a firm. 
C)is guaranteed to receive the lowest price for a product. 
D)spends the maximum amount of money on a firm's product. 
E)has a high purchasing power.

Quizplus · Accepted Answer

A most-favored customer is someone who is guaranteed to receive the lowest price for a product. In the payoff matrix, the pricing strategy $500 for Firm A and $200 for Firm B yields a higher profit for both firms. However, if Firm A decides to offer the lowest price to a most-favored customer and chooses the pricing strategy of $200, Firm B would have no incentive to decrease its pricing strategy as it would result in a lower profit. Thus, in this scenario, Firm A would have a higher profit by offering the lowest price to a most-favored customer, resulting in a payoff of $8000. Therefore, option C is the best choice.

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