MARK 3000 Exam 3 McManus Study Guide.
Overall sacrifice a consumer is willing to make to acquire a specific product or service -
answerprice
importance of price (seller) - answerprice is revenue
importance of price (consumer) - answerprice is cost of something
price allocates - answerresources...
break even analysis - answer✔✔-used to set "must have" price (or minimum quantity that must
be sold)
-most cases, adjustments made upward of break even
amount added above break even price - answer✔✔profit
contribution margin - answer✔✔selling price - variable cost per unit
customers - answer✔✔-willingness to pay
-ability to pay
-nature of product (necessity or luxury)
consumers' responsiveness or sensitivity to changes in price - answer✔✔elasticity of demand
Elasticity (E) - answer✔✔(percentage change in *quantity* demanded of good)/(percentage
change in *price* of good)
E less than -1 - answer✔✔demand is elastic; 1% decrease in price produces more than 1%
increase in sales
Ex. Cruise
E greater than 1 - answer✔✔demand is inelastic; 1% decrease in prices produces less than a 1%
increase in sales
Ex. Gas, milk
demand is price inelastic--> price goes down, - answer✔✔demand has little change, revenue
goes down
demand is price inelastic--> price goes up, - answer✔✔demand has little change, revenue goes
up
demand curves - answer✔✔-assumes no change in factors influencing elasticity
-shows quantity demanded at various price points
-not all are downward sloping
-prestigious products or services have upward sloping curves
new product pricing strategies for manufacturers - answer✔✔-market penetration pricing (start
price low to get into market)
-price skimming (start price high) iPhoneX
one firm controls market - answer✔✔monopoly
a handful of firms control the market - answer✔✔oligopoly
many firms selling differentiated products at different prices - answer✔✔monopolistic
competition
many firms selling commodities for the same prices - answer✔✔pure competition
channel members - answer✔✔-retailers normally set final price to consumers
-mark-up
-keystoning
mark-up - answer✔✔-amount added above retailer's cost to purchase the item
-mark-up includes retailer's expenses and profit
keystoning - answer✔✔-100% markup
-retailer doubles his purchase cost to get to a selling price
combining two or more different products in a single package - answer✔✔price bundling
sell product at near or below cost to generate traffic - answer✔✔leader (loss leader) pricing
odd-number prices imply bargain; even number prices imply quality - answer✔✔odd-even
pricing
no sales by retailer - answer✔✔every day low pricing
lure customers through false or misleading price advertising - answer✔✔bait and switch pricing
legal aspects and ethics of pricing - answer✔✔-illegal price advertising
-predatory pricing (drive other business out of business via low prices)
-price fixing (all gas stations raise price)
-price discrimination
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