Pricing Practices- Economics
Published on: Mar 4, 2016
Transcripts - Pricing Practices- Economics
Cost plus pricing means
fixing the price by taking into account
the cost per unit plus profit margin.
☻AFC + AVC
The economic concept of marginalism is replaced by the
practical concept of incrementalism.
While discussing the short-run behaviour of a competitive
firm, they made a reference to the “ Shut-Down Point”
If the product price is below the average variable costs, it
may pay the firm to shut-down its plant.
If the product price exactly covers the average variable cost,
it makes no difference, except for non-financial reasons, if or
not the plant is to be operated.
If the price exceeds average variable cost, it is better for the
firm to operate than to shut down.
The price which covers average total costs (fixed and variable
both) is break-even price.
The difference between the “Shut-Down
Point” and “Break Even Point” is illustrated in above figure
where B represents the “break even point” and S, the Shutdown point. Shut Down Price OP is less than the break even
This policy enables the company to earn
additional revenue at no additional fixed cost.
Price of Substitute
Tie in Sales
A product mix includes at least one or
usually several product lines. A product line is a group of
products which perform generally similar functions and which
are somewhat similar in physical characteristics.
E.g. Pocket books is a product line, text
book is another. Within each product line, there may be
numerous varieties which differ in size, nature, functions
performed, strength, price, colour, package etc.
Problems of Sale of Multiple
Product- Line Pricing
Methods of transfer pricing.
Types of Price Discrimination