# Price by lanyuehua

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Price

By: Christopher
Importance of cost and price

 Costs are the expenses of a firm; the
money which the firm has to pay for
production
 Price is the amount customers are
charged for products
Factors for pricing
 Customers - Lowering the price of a product
increases customer demand but if the price is
too low, customers might assume it is made
with low quality
 Competitors - A business takes into account
the price charged by rival organisations,
particularly in competitive markets
 Costs - A business can make a profit only if
the price charged eventually covers the costs
of making an item

 There are times when businesses are
willing to set price below unit cost. They
use this loss leader strategy to gain
sales and market share
 A loss leader’s price is extremely low to
attract customers to acknowledge other
products of that company
Pricing Strategy
   Penetration pricing means setting a relatively low
price to boost sales
   Price skimming means setting a relatively high price
to boost profits before other competitors come in the
market
   Cost plus pricing is when firm add a certain amount
of percentage to the cost of production
   Competitive pricing occurs when a firm decides its
own price based on that charged by rivals
   Predatory pricing to set a very low price for the
business products to knock out all of their competitors
Average Fixed cost

 Average fixed costs (AFC) are
calculated by dividing total fixed costs by
the level of output
 AFC + AVC = AC
Average Variable Cost

 Average variable costs (AVC) are
calculated by dividing total variable costs
by the level of output
 AFC + AVC = AC
Break-even chart
 In order to have an accurate break-even chart, three lines
must be plotted:
 Total Fixed Costs (TFC)
 Total Costs (TC)
 Total Revenue (TR)

   The x-axis is labelled as 'Output' (in units).
   The y-axis is labelled as 'Costs, Revenue and Profit' (in £ )
Elasticity

 Elasticity is the ratio of the percent change in
one variable to the percent change in another
variable
 Price elasticity of demand measures the
percentage change in quantity demanded
caused by a percent change in price
 The price elasticity of supply measures how
the amount of a good firms wish to supply
changes in response to a change in price
Inelasticity
 Inelasticity is when the supply and demand
for a good are unaffected when the price
of that good or service changes
 An example of perfectly inelastic demand
would be a life saving drug that people will pay
any price to obtain. Even if the price of the
drug were to increase dramatically, the
quantity demanded would remain the same

Source:http://www.investopedia.com/terms
/e/inelastic.asp

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