Price Calculations: Marginal Analysis

Topics

pricing, analysis, calculations, profitability, demand curve, marginal analysis


Review the activity below or download the PDF student worksheet


Student Discussion Activity

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).

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

Student Discussion 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?

Related Activities

What Price Mark-up is Needed?

Price Calculation: Target Profit Pricing

Price Calculation – Breakeven Pricing

Price Calculation – Cost-plus Pricing