Examine the three major pricing methods that firms employ.
The three major pricing methods are cost-based pricing, demand-based pricing, and competition-based pricing.
When cost-based pricing is employed, a proportion of the cost is added to the total cost to determine the selling price.
When demand-based pricing is used, the price will be higher when demand is higher, and the price will be lower when demand is lower.
A firm that uses competition-based pricing may choose to price below competitors' prices, at the same level as competitors' prices, or slightly above competitors' prices.
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