Answer (C) is correct . A target price is the expected market price of a product, given the company’s knowledge of its customers and competitors. Hence, under target pricing, the sales price is known before the product is developed. Subtracting the unit target profit margin determines the long-term unit target cost. If cost-cutting measures do not permit the product to be made at or below the target cost, it will be abandoned.
Answer (A) is incorrect because Full-cost pricing promotes price stability. It limits the ability to cut prices.
Answer (B) is incorrect because Full-cost pricing provides evidence that the company is not violating antitrust laws against predatory pricing.
Answer (D) is incorrect because Full-cost pricing has the advantage of recovering the full long-term costs of the product. In the long term, all costs are relevant.
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