Pricing Analysis Flashcards
a change in price results in
a change in quantity demanded
Relationship of demand elasticity coefficient to demand
effect on total revenue
a purely competitive market
characterized by a large number of buyers and sellers acting independently and a homogeneous or standardized product
only basis for competition is price
a monopoly market
consists of one firm and the product has no close substitutes
oligopoly
an industry with a few large firms
decisions as to price, advertising, etc., are to a very large extent dependent on the actions of the other firms
internal factors of price-setting
-marketing objectives
-marketing-mix strategy
-all relevant costs in the value chain
-organizational focus of pricing decisions
-capacity
external factors of price-settign
-the type of market
-customer perception of value and price
-the price-demand relationship
-competitors’ products, costs, prices and amounts supplied
a cartel arises
when a group of firms join together for price-fixing purposes
a collusive oligopoly
four common cost-plus pricing formulas
- total cost + (total cost x markup percentage)
- absorption mfg. cost + (absorption mfg. costs x markup percentage)
- variable mfg. cost + (variable mfg. cost x markup percentage)
- total variable cost + (total variable cost x markup percentage)
target price
the expected market price for a product or service, given the company’s knowledge of its consumers’ perceptions of value and competitors’ responses
target cost = market price - desired profit
Product pricing is a function of
-consumer demand
-competitive factors
-seller’s cost structure and profit objectives (quality and life of a product)
if the price of apples declines and total revenue received by the firm increases, the
demand for apples is elastic
a decline in price accompanied by an increase in total revenue indicates that quantity demanded has increased by a greater percentage than the percentage price decrease. Hence, the price elasticity of demand is greater than 1.0. Demand is elastic when it is greater than 1.0.
target cost per unit is the difference between target
operating income per unit and the target price
If oil producers and retailers were to increase the price of gasoline for cars during the summer season by $.05 per gallon, these suppliers anticipate that the demand for gasoline
Is relatively inelastic.
An increase in gasoline prices during the summer implies that demand for gasoline is relatively price inelastic in the short run. That is, the price increase will result in little or no decline in the amount demanded, and total revenues will increase.
