Lecture 14

Question 1

Minimum pricing formula

Answer 1

Incremental value+ (Opportunity cost)

Question 2

Pros and cons of minimum pricing

Answer 2

Market opportunities may be missed:
Pros
Simple and easy to calculate

Cons

It ignores customers’ response
it ignores competitor offerings
It frequently uses a concept of cost (full cost) which is inappropriate for decision-making.
It ignores the interplay of:
Volume, unit fixed cost and selling price