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Pricing Methods
1. Price is a very important weapon that can be used to persuade consumers to buy. Price is one of many factors that determine the demand for a product. What are the most common pricing methods adopted by firms?
2. Cost-plus pricing is a very simple pricing method and is perhaps the most common. A firm may calculate its average costs of producing a product and simply add a profit «mark up», say 10 %, on to average costs. This mark-up could be changed to allow for the effects of competition and economic conditions, e.g. where there is a lot of competition this mark-up may be lowered or when business is good the mark-up could be raised.
3. Marginal-cost pricing differs from the above in that the firm looks not at its average costs but marginal costs, i.e. the firm calculates the additional cost of producing the next unit or set of units of output and the firm charges a price (plus a ‘mark-up’) according to the marginal cost. A typical example is found in the shoe repair business. There appear to be no standard prices for repairing shoes. What tends to happen is that the cobbler examines the shoes and makes a quick estimate of how much material and time it will take to repair them. Larger shoes, those made of leather and those in greater disrepair have a higher marginal cost and therefore a higher price is charged for their repair.
4. Price discrimination: several firms are able to charge different prices for a similar product. This is known as price discrimination. British Rail (BR), for example, charges different consumers such as businessmen and women, children, senior citizens and students different prices and also charges different prices according to the time of journey, e.g. peak, off-peak, weekly and week-end.
Ответьте на вопрос:
What can make a profit «mark up» change?
Pricing Methods
1. Price is a very important weapon that can be used to persuade consumers to buy. Price is one of many factors that determine the demand for a product. What are the most common pricing methods adopted by firms?
2. Cost-plus pricing is a very simple pricing method and is perhaps the most common. A firm may calculate its average costs of producing a product and simply add a profit «mark up», say 10 %, on to average costs. This mark-up could be changed to allow for the effects of competition and economic conditions, e.g. where there is a lot of competition this mark-up may be lowered or when business is good the mark-up could be raised.
3. Marginal-cost pricing differs from the above in that the firm looks not at its average costs but marginal costs, i.e. the firm calculates the additional cost of producing the next unit or set of units of output and the firm charges a price (plus a ‘mark-up’) according to the marginal cost. A typical example is found in the shoe repair business. There appear to be no standard prices for repairing shoes. What tends to happen is that the cobbler examines the shoes and makes a quick estimate of how much material and time it will take to repair them. Larger shoes, those made of leather and those in greater disrepair have a higher marginal cost and therefore a higher price is charged for their repair.
4. Price discrimination: several firms are able to charge different prices for a similar product. This is known as price discrimination. British Rail (BR), for example, charges different consumers such as businessmen and women, children, senior citizens and students different prices and also charges different prices according to the time of journey, e.g. peak, off-peak, weekly and week-end.
Ответьте на вопрос:
What can make a profit «mark up» change?
- BR’s price discrimination can.
- Economic situation can.
- Shoe repair business can.
- Consumers’ will can.
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