33:010:451 Lecture Notes - Lecture 2: Price Discrimination, Price Gouging, Value Engineering
13 Oct 2017
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Short-term pricing is determined by marginal revenue = marginal cost (in perf. comp. mkt: marginal cost = cost of producing last unit (only includes variable cost) In long run, companies want price to cover xed costs. Major factors that affect pricing decisions: 3 in uences on supply & demand = customers, competitors, costs. Cannot sell below cost, but can try to reduce costs. If you"re a monopoly, you can choose your price; but in comp. market, prices are already set. Consumer demand can be elastic or inelastic. Short-run pricing for special orders: iff you have idle capacity, you should price based on variable costs; aim for stable prices: for long-run pricing, consider xed costs. The more correct your costs are, the better your pricing strategy: cross-subsidization is used to divide up total costs among different products. Manufacturing companies have 3 costs = direct material, labor, and oh. Based on consumer surplus; see how elastic demand is & set price accordingly.
