Which of the following is an example of a cost-oriented price setting approach?

• A. Setting prices based on the highest price consumers are willing to pay
• B. Setting prices by adding a fixed percentage markup to the average cost of production
• C. Setting prices to match those of competitors in the market
• D. Setting prices according to government-imposed price ceilings

Answer: (B)

Verified step by step guidance

1. Understand that a cost-oriented price setting approach focuses on determining prices primarily based on the costs incurred in production rather than consumer demand or competitor prices.
2. Identify that the key characteristic of cost-oriented pricing is using the cost of production as the base and then adding a markup to ensure profitability.
3. Recognize that 'Setting prices by adding a fixed percentage markup to the average cost of production' fits this description because it starts with the cost and adds a predetermined profit margin.
4. Contrast this with other options: pricing based on the highest price consumers are willing to pay is demand-oriented; matching competitors' prices is competition-oriented; and government-imposed price ceilings are regulatory constraints, not cost-based methods.
5. Conclude that the correct example of a cost-oriented price setting approach is the one involving adding a fixed percentage markup to the average cost of production.