Jul 052012
 

Marginal analysis is based on the assumption that as the product’s price alters, so will its level of demand (sales). Therefore, this approach looks for the maximum profit point, when considering the firm’s cost structure and the likely sales at different price points (which is essentially the product’s demand curve). 

 

ACTIVITY/TASK

Determine the best price point (that is, what is the best price to charge to maximize profits):

If the price is set at:

Then unit sales are likely to be:

Total Revenue

Allocated Fixed Costs

Variable Cost/Unit

Total Production

Cost

Gross  

Profit  

$60

500

$10,000

$10

$50

1,000

$10,000

$10

$40

1,500

$10,000

$10

$30

2.000

$10,000

$10

$20

2,500

$10,000

$10

 

QUESTIONS

  1. Start by completing the above table.
  2. Why is this pricing approach likely to be more realistic for a marketer? Why?
  3. Does this approach take into account competitor pricing?

Sorry, the comment form is closed at this time.