prelim 3 review

prelim 3 review - Prelim 3 Review Six Steps in Setting...

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Prelim 3 Review Six Steps in Setting Price Identify Pricing Objectives and Constraints o Objectives Profit Measured in terms of return on investment Managing for long-run profits: give up immediate profit in exchange for achieving a higher market share Maximizing current profit: targets set, performance measured quickly Target return: firm sets a profit goal Sales Increase sales revenue increase market share increase profit Market Share Ratio of firm’s sales revenues to those of the industry Pursue when industry sales are flat or declining Unit Volume Quantity produced or sold Need to match demand with price and production capacity Survival Profit, sales, market share are less important than mere survival Social Responsibility Forgo higher profit for obligations to customers and society o Constraints Demand Product class, product, or brand demand Luxury vs. necessity Newness of product Stage in PLC New product higher price can be charged Nostalgai/fad prices may rise after going down Single product vs. product line Price of one product must be consistent with price of other products in product line Cost of production and marketing Price must cover all costs of producing and marketing a product firm’s costs set a floor under its price Cost of changing prices, time periods Consider whether too many people have bought product at old price
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Type of competitive market Pure competition: identical products, price set by marketplace Monopolistic competition: national brands vs. regional private brands – advertising important Oligopoly: price leader, competitors follow; avoid disastrous price wars Pure monopoly: sole seller sets price, no differentiation Competitors’ prices Anticipate what competitors will charge Estimate Demand and Revenue o Estimating Demand Demand curve: relates quantity sold and price Other factors besides price that help to estimate demand (demand factors) Consumer tastes o Depend on demographics, culture, technology, fads, etc. Price and availability of similar products Consumer income o Consumer income increases demand increases Movement along demand curve: price lowered demand increases Assumes other factors stay the same Shift of demand curve: distribution increased, income rises, etc o Estimating Revenue Demand curves and revenue MR curve falls at twice the rate of the demand curve Price elasticity of demand Percentage change in quantity demanded relative to percentage change in price Elastic demand: 1% decrease in price produces more than 1% increase in quantity demanded increases revenue Inelastic demand: 1% decrease in price produces less than 1% increase in quantity demanded decreases revenue Unitary demand: 1% change in price = 1% change in demand no change in revenue
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This note was uploaded on 12/13/2008 for the course AEM 2400 taught by Professor Mclaughlin,e. during the Fall '07 term at Cornell.

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prelim 3 review - Prelim 3 Review Six Steps in Setting...

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