Pricing & Profitability Flashcards
Slope of Demand Curve
Change in Price/ Change in Quantity Demanded
Upper Limit (Ceiling)
The point at which the demand curve crosses the y-axis indicates the price above which any customer will not buy the product because it is too expensive
Lower Limit (Floor)
The point at which the demand curve crosses the x-axis indicates the maximum number of units the firm can sell if the price is zero (i.e., the maximum quantity customers are willing to buy at any price)
Price Elasticity
what the customers’ demand for a product is likely to be for a change in price at a certain point on the demand curve
Price Elasticity of Demand Equation
% change in quantity demanded/ % change in price
Elastic
> 1
Inelastic
0 < x < 1
Gross Margin
Total Revenues - Cost of Goods Sold
Direct Marketing Contribution Equation
Total Revenue – (Variable Cost per Unit * Quantity) – Marketing Expenses
Net Income
Total Revenue - Total Costs
Penny Profit
Retailer Selling Price - Cost to Retailer
When to Assess Profitability
- Price changes
- Marketing Expenses
- Variable Costs
- Distribution Strategy
- Sales Demand
