07 Pricing Strategies continued

07 Pricing Strategies continued - What products are elastic...

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Pricing Strategies Keeping pace: (WSJ) - innovative styles like its Cinco de Mayo shoe (right) create this kind of buzz that has kept Nike hip as its sales rise - hip, counter culture, cartoons, tattoo artists Estimating Demand and Revenue - demand curve = average revenue curve - marginal revenue curve: how much additional revenue you get per sale - P x Q = TR; price x quantity = total revenue - Total revenue starts at 0, peaks at some point, and then decreases o Why does it go down?: price goes down to induce them to buy more less revenue; at $1, 10 buyers, $10 revenue, at $5, 5 buyers, $25 buyers - Demand: downward sloping - Elasticity: %∆Q/%∆P; as I decrease/increase price, how much is quantity to increase? o Elasticity can be elastic (greater than 1) or inelastic (less than one)
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Unformatted text preview: What products are elastic? • Products with substitutes Inelastic? • Products with less substitutes • Products you don’t use often Adding costs-marginal cost decreases as quantity increases (get better at making it), then increases because of diminishing returns in productivity-marginal revenue???-Ask Julie/Mike for graphs-Profit max is when MC = MR, why? Isn’t that a net of 0? Break even Analysis-puts TC and TR together to determine profitability at different output levels -BEP (break even point) = Fixed cost/price - variable cost = quantity you must sell to break even-P = [fixed cost + (variable cost x quantity)]/quantity o Algebraic manipulation of BEP equation---how did he get this equation?-Example:...
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