Chapter 18 Flashcards
(32 cards)
Markup:
a dollar amount added to the cost of products to get the selling price.
Markup (percent):
the percentage of selling price that is added to the cost to get the selling price.
Markup chain:
the sequence of markups firms use at different levels in a channel—determining the price structure in the whole channel.
Average‑cost pricing:
adding a reasonable markup to the average cost of a product.
Total fixed cost:
the sum of those costs that are fixed in total—no matter how much is produced.
Total variable cost:
the sum of those changing expenses that are closely related to output—such as expenses for parts, wages, packaging materials, outgoing freight, and sales commissions.
Total cost:
the sum of total fixed and total variable costs.
Average cost (per unit):
the total cost divided by the related quantity.
Average fixed cost (per unit):
the total fixed cost divided by the related quantity.
Average variable cost (per unit):
the total variable cost divided by the related quantity
Break‑even analysis:
an approach to determine whether the firm will be able to break even—that is, cover all its costs—with a particular price.
Break‑even point (BEP):
the sales quantity where the firm’s total cost will just equal its total revenue.
Fixed‑cost (FC) contribution per unit:
the selling price per unit minus the variable cost per unit.
Marginal analysis:
evaluating the change in total revenue and total cost from selling one more unit to find the most profitable price and quantity.
Marginal revenue:
is the change in total revenue that results from the sale of one more unit of a product.
Marginal cost:
the change in total cost that results from producing one more unit.
Rule for maximizing profit:
the highest profit is earned at the price where marginal cost is just less than or equal to marginal revenue.
Value in use pricing:
setting prices that will capture some of what customers will save by substituting the firm’s product for the one currently being used.
Reference price:
the price a consumer expects to pay.
Leader pricing:
setting some very low prices—real bargains—to get customers into retail stores.
Bait pricing:
setting some very low prices to attract customers but trying to sell more expensive models or brands once the customer is in the store.
Psychological pricing:
setting prices that have special appeal to target customers.
Odd‑even pricing:
setting prices that end in certain numbers.
Demand‑backward pricing:
setting an acceptable final consumer price and working backward to what a producer can charge.
