The special demand structure that induces a firm to use a cross-subsidization strategy is:
A) perfect substitution among products.
B) imperfect substitution among products.
C) independent demand for products.
D) interdependent demand for products.

Question

Quizplus · Accepted Answer

Cross-subsidization is a strategy used when there is interdependent demand for products, meaning that the demand for one product is affected by the price or availability of another product within a firm. This strategy involves charging a higher price for one product to subsidize the lower price of another product with the goal of maximizing total profits. The other options, perfect or imperfect substitution among products and independent demand, do not result in a need for cross-subsidization.

The Special Demand Structure That Induces a Firm to Use