According to prospect theory, what strategy will firms typically employ with regard to pricing and packaging of their goods, when faced with rising production costs?
A. Firms will increase both package sizes and prices but will increase prices more to
communicate to consumers that the product has greater value.
B. Firms will reduce package sizes but keep prices the same, thus increasing the per unit
price of the good.
C. Firms will keep package sizes the same but lower prices and attempt to cover the higher
costs with greater revenue.
D. According to prospect theory, the choice of strategy doesn't matter, as consumers are
generally able to recognize price increases regardless of what form they take.
Answer: B
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