Long Term Pricing

Question 1

How does the LR affect Setting Prices?

Answer 1

Most, if not all, costs are variable (relevant).
Needs system to reflect cost of each product for price stability.
Assumed that organisation set prices so profits are maximised.

Question 2

Where to Find Profit Maximisation Point on Graph?

Answer 2

MR =MC

Question 3

Equations to Derive Demand:

Answer 3

P= a - (bQ / change in Q)

P = price
Q = quantity demanded
a = price where D is 0
b = amount price falls for each stepped change in D

Question 4

Profit Maximising Formulae:

Answer 4

Profit = TR – TC
Profit = (Average Revenue – Average Costs) x Quantity
Profit maximised, MC = MR
Revenue Maximised, MR = 0

Question 5

What is Marginal Revenue?

Answer 5

MR is the total earned from one extra unit of sale.

Question 6

What is Marginal Cost?

Answer 6

MC is the additional cost of one extra unit.

Question 7

a =

Answer 7

current price + (current Q at current P / Change in Q with price change)