The correct answer is: D. a-1, b-2, c-4, d-3
a. Postage stamp pricing is a pricing strategy in which a company charges the same price for all units of a good or service, regardless of the cost of production. This strategy is often used by companies that have high fixed costs and low marginal costs, such as airlines and utilities.
b. Loss leader pricing is a pricing strategy in which a company sells a product at a loss in order to attract customers to its store or website. The company hopes that customers will buy other, more profitable products while they are in the store or on the website.
c. Economic capacity is the level of output at which a company’s average total cost is minimized. This is the level of output at which a company is most efficient.
d. Reserve capacity is the amount of production capacity that a company keeps available in case of unexpected demand. Reserve capacity can be expensive, but it can help a company avoid lost sales if demand suddenly increases.
Here is a more detailed explanation of each option:
a. Postage stamp pricing is a pricing strategy in which a company charges the same price for all units of a good or service, regardless of the cost of production. This strategy is often used by companies that have high fixed costs and low marginal costs, such as airlines and utilities. For example, an airline might charge the same price for a ticket regardless of whether the flight is full or empty. This is because the airline’s fixed costs, such as the cost of the airplane, are the same regardless of the number of passengers on the flight. The airline’s marginal cost, which is the cost of adding one more passenger, is relatively low. Therefore, the airline can charge the same price for all tickets and still make a profit.
b. Loss leader pricing is a pricing strategy in which a company sells a product at a loss in order to attract customers to its store or website. The company hopes that customers will buy other, more profitable products while they are in the store or on the website. For example, a grocery store might sell milk at a loss in order to attract customers to the store. The grocery store hopes that customers will buy other, more profitable products, such as meat and produce, while they are in the store.
c. Economic capacity is the level of output at which a company’s average total cost is minimized. This is the level of output at which a company is most efficient. For example, a factory might have an economic capacity of 100 units per day. This means that the factory can produce 100 units per day at the lowest possible cost. If the factory produces more than 100 units per day, its average total cost will increase. If the factory produces fewer than 100 units per day, its average total cost will also increase.
d. Reserve capacity is the amount of production capacity that a company keeps available in case of unexpected demand. Reserve capacity can be expensive, but it can help a company avoid lost sales if demand suddenly increases. For example, a factory might keep a certain number of machines on standby in case of unexpected demand. If the factory suddenly receives a large order, it can use the machines on standby to meet the demand.