Final Flashcards
What is the market-based price
The selling price depends on the degree of competition and the degree to which the company’s product is different from the competitors products. The prices are based on customer demand
What is a cost based price
The selling price is computed as the product’s cost plus a markup
In a service organization, cost-based pricing is determined by calculating the labor rate and the materials loading charge
Price elasticity: elastic
An increase in selling price should decrease customer demand for the products so that fewer units are sold.
When small increases in price result in large decreases in demand, the demand for that product is considered elastic
In elasticity
When the decreasing unit sales does not offset the increased selling price, the price increase causes total revenue to increase
What is the profit maximizing price
When marginal costs equal marginal revenue’s
What is the price elasticity of demand formula
Ln(one plus the percentage change in quantity sold) over ln( one plus a percentage change in price)
What is the profit maximizing formula
(Elasticity over (one plus elasticity)) times the variable cost
What is the death spiral
With cost based prices, Sales volumes inappropriately influence the price causing a downward demand spiral
Peakload pricing
Industries charge different prices at different times to reduce capacity constraints
Price skimming
When a higher price is charged for a product or service when it is first introduced
Penetration pricing
The practice of setting low prices when new products are introduced to increase marketshare
Price gouging
Practice of charging a price viewed by consumers as too high
Price discrimination
Charging different prices to different customers
Predatory pricing
Setting prices too low to drive out competitors out of the market and then raise the prices
Collusive pricing
Competitors get together to determine prices this is illegal
Dumping
When foreign-based companies sell products at lower prices than in their home country
What is an NPO
Look it up
What is a transfer price
The price used to record revenue and cost when goods or services are transferred between departments
What is the perfect transfer price
The opportunity cost of transferring goods and services internally
External demand is zero, and the selling division has excess capacity, the transfer price will be the variable cost
The capacity is limited and goods or services can be sold externally, then opportunity cost would be the market price
