3. The Role of Costs in setting Prices

Question 1

% Breakeven Sales Change

Answer 1

= -(-$ΔP-$ΔC)/($CM+($ΔP-ΔC))

= (-$ΔCM)/(New $CM)

Question 2

Questions when competitor changes Prices

Answer 2

• What is the minimum potenzial sales loss that justifies meeting a lower competitive price?
• What is the minimum potential sales gain that justifies not following a competitive price increase?

Question 3

Reactive % Breakeven Sales Change

Answer 3

= ΔP/CM

Question 4

Proactive Price Change

Answer 4

= (-ΔP/(CM+ΔP)

Question 5

Change in Fixed Costs

Answer 5

Extra sales to covert incremental Fixed Cost = $ΔFixed Costs/$CM

Question 6

Price elasticity of demand

Answer 6

= % Change in Quantity / % Change in Price

% Change in Quantity = (New Quantity - Old Quantity) / Old Quantity

% Change in = (New Price - Old Price) / Old Price