Ch 18 Price setting in Business World Flashcards
a dollar amount added to the cost of products to get the selling price
markup
means percentage of selling products that is added to the cost to get the selling prices
Markup (percent)
the sequence of markups firms use at different levels in the channels- determines the price structure in the whole channel
markup chain
the # of times the average inventory is sold in a year
Stockturn rate
means adding a reasonable markup to the average cost of a product
average-cost pricing
is the sum of those cost that are fixed in total- no matter how much is produced
total fixed cost
the sum of those changing expenses that are closely related to output- expenses for parts, wages, materials, etc
total variable cost
the sum of total fixed and variable cost
total cost
is obtained by dividing total cost by related quantity
average cost (per unit)
obtained by dividing total fixed cost by the related quantity
average fixed cost (per unit)
obtained by dividing total variable cost by the related quantity
average variable cost (per unit)
adding a target return to the cost of the product- has become popular in recent years
Target return pricing
evaluated whether the firm will be able to break even- that is cover all its cost- with a particular price
break-even analysis
the quantity where the firm’s total cost will just equal its total revenue
break-even point (BEP)
the assumed selling price per unit mines the variable cost
Fixed cost (FC) contribution per unit
focuses on the changes in total revenue and total cost from selling one more unit to fine the most profitable price and quantity
marginal analysis
is the change in total revenue that results from the sale of one more unit of a product
marginal revenue
is the change in total cost that results from the sale of one more unit of a product
marginal cost
the highest profit is earned at the price where marginal cost is just less than or equal to marginal revenue
rule of maximizing profit
the extra profit on the last unit- is near zero
marginal profit
usually sets a price for all to follow, perhaps to maximize profits or to get certain target return on investment
price leader
means setting prices that will capture some of what customers will save by substituting the firm’s product for the one currently being used
value in use pricing
the price the expect to pay- for many of the products the purchase
reference price
means setting some very low prices- real bargains- to get customers into retail stores
leader pricing
