Which of the following is a true statement about the process of cross-subsidization,given that a firm is selling two products?
A) The two products cannot have interdependent demand functions.
B) The firm will sell both of its products at prices set above costs.
C) The firm needs cost complementarities in the production of the two goods.
D) The firm will sell both of its products at prices set above costs and the firm needs cost complementarities in the production of the two goods.

Question

Quizplus · Accepted Answer

Cross-subsidization can occur when there are cost complementarities in the production of two goods, allowing a firm to support one product with the profits from another. This does not necessarily mean prices are set above costs for both products or that demand functions are interdependent.

Which of the Following Is a True Statement About the Process