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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
Loss leader

  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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posted:8/28/2012
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