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Why are profits usually small or negative during the introductory stage?
APrices are held below cost by law in most markets
BCosts are high while the sales volume is still low
CCompetitors have already cut prices to the bone
DDistribution is wider than the firm can support
Answer & Solution
Correct answer: B. Costs are high while the sales volume is still low
1. In the introductory stage the failure rate is high and the product is still being modified.
2. Production and marketing costs are high at this point.
3. Sales volume is still low, so there is little revenue to set against those costs.
4. High cost with low volume leaves profits small or negative.
5. Competition may be light during introduction, so heavy price cutting is not the cause.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 11 "Creating Products and Pricing Strategies to Meet Customers' Needs", section 11.8 The Product Life Cycle_
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