Supplied divided by the percentage change in its

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supplied divided by the percentage change in its price o Determinants o Availability of substitutes o Role as a complement to another product o Number of business transactions conducted online o Whether product is perceived as a necessity o Whether product is perceived as a luxury o Portion of a person’s budget spent on an item o Consumers’ time perspective o Short run; long run Price Determinants in Economic Theory o Demand – A schedule of the amounts of a firm’s product that consumers will purchase at different prices during a specified time period o Supply – A schedule of the amounts of a good or service that will be offered for sale at different prices during a specified period o These schedules may vary for different types of market structures
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4. List the practical problems involved in applying price theory concepts to actual pricing decisions. o Many firms do not attempt to maximize profits o Demand curves are difficult to estimate (supply side of the pricing equation is easy) o Explain the major cost-plus approaches to price setting. o Cost-plus pricing: o Most popular alternative o Uses a base-cost figure per unit and adds a markup to cover unassigned costs and to provide a profit o Allows businesses with low costs to set prices lower than those of competitors’ and still make a profit 5. List the chief advantages and shortcomings of using breakeven analysis in pricing decisions. Adv: easily understood by managers & may help them decide whether required sales levels for a certain price are realistic goals Disadv: assumes cost can be divided into fixed and variable categories, assumes per-unit variable costs don’t change at different levels of operation, doesn’t consider demand 6. Explain the use of yield management in pricing decisions. Pricing strategy that allows marketers to vary prices based on such factors as demand, even though the cost of providing those goods or services remains the same Methods for Determining Prices o Prices are traditionally determined in two basic ways: o Supply and demand o Cost-oriented analyses o Problems? o Both methods are flawed b/c they overlook – customary prices or traditional prices that customers expect to pay for certain goods and services o Rising costs à reduced product size to keep prices the same o Rising costs à increase price but leave little money for other goods/services 4 Different Market Structures o Pure Competition - A market structure with so many buyers and sellers that no single participant can significantly influence price o Monopolistic Competition - Diverse parties exchange heterogeneous, relatively well- differentiated products, giving marketers some control over prices o Oligopoly - Relatively few sellers; each has large influence on price
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o Monopoly - Only one seller of a product exists and for which there are no close substitutes Cost & Revenue Curves o A product’s total cost is composed of total variable costs and total fixed costs o Variable costs - Change with the level of production o
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