Pricing Flashcards
1
Q
Name 2 situations price skimming can work
A
- New/different product
- Significant barriers to entry
- Price inelastic
- Short life cycle
2
Q
Name 2 situations penetration pricing works in
A
- Low initial market price to encourage customer purchases
- ## Aims for rapid growth
3
Q
Name 2 situations penetration pricing will work
A
- Established business wants
- New business wants to establish market share
- Price Elastic
- Economies of scale can be achieved
4
Q
How to calculate Mark Up?
A
It totals up to X%
5
Q
How to calculate Margin?
A
It equals 100
6
Q
Pros of cost-plus pricing
A
- Simple
- Can be used for minor products that demand isn’t an issue
7
Q
Cons of cost-plus
A
- Ignores demand
8
Q
Equation of the demand line?
A
p = a -bQ
9
Q
Formula for the gradient?
A
New Price - Old Price / Old Quantity
10
Q
Formula for MR?
A
MR = a - 2bQ
11
Q
What does MC equal to?
A
MC = MR
12
Q
Limitations to the economists’ approach
A
- Assumes unrealistic knowledge of data
- Difficult to isolate effects on demand
