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Part $1$

Describe the downward demand spiral and its implications for pricing decisions.

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Part $1$

A$.$

The downward demand spiral for a company is the continuing increase in the demand for its products that occurs when competitor prices are$$ lowered; as demand$$ increases, lower and lower unit costs result in greater ability to surpass$$ competitors? prices.

B$.$

The downward demand spiral is the continuing inability for a company to meet the demand for its products that occurs when competitors offer the same$$ products; as demand drops$$ further, higher and higher unit costs result from spreading budgeted

fixed manufacturing costs to less volume of units.

C$.$

The downward demand spiral is a reduction in the production of a$$ company's products. It is less likely to occur when

Managers

use reported unit costs in a mechanical way to set prices. They are more likely to promote a downward demand spiral when they use practical capacity than when they use normal capacity utilization or$$ master$-$budget capacity utilization.

D$.$

The downward demand spiral is the continuing reduction in demand for a$$ company's product that occurs when the prices of$$ competitors' products are not$$ met; as demand drops$$ further, higher and higher unit costs result in more and more reluctance to meet$$ competitors' prices.