What is the term called that means the practice of funding a product with the profits generated by a different product? 

The correct answer is Cross-subsidization.

Key Points

• Cross-subsidization refers to the practice of using profits from one product or service to subsidize the production or sale of another product or service.
• This strategy is often used by companies to support a new or less profitable product line.
• It helps businesses to diversify their product offerings and compete more effectively in different market segments.
• Common in industries such as telecommunications, utilities, and healthcare, where different products or services are bundled together.
• Allows companies to maintain price competitiveness while ensuring overall profitability.

Additional Information

• Bundling
  • This practice involves selling multiple products or services together at a combined price, which is often lower than the total cost of buying them separately.
  • Bundling can enhance customer value perception and increase sales volumes.
• Economies of Scale
  • Economies of scale occur when a company reduces its per-unit cost as it increases production.
  • This often results from spreading fixed costs over a larger number of units.
• Loss Leader
  • A loss leader is a product sold at a low price (often below cost) to stimulate other profitable sales.
  • This strategy is used to attract customers with the expectation that they will buy other items at normal prices.
• Price Discrimination
  • Price discrimination involves selling the same product at different prices to different groups of consumers.
  • It aims to capture consumer surplus and maximize profits.