MGMA01H3 Lecture Notes - Lecture 5: Profit Maximization, Variable Cost, Economic Surplus
Document Summary
A company has annual sales of 100,000 units for one its products. The selling price for this product is , variable cost is , and the allocation of fixed overheads is million. The analysis of the market suggests that you have the following two options for the next year: Increase sales by 1% by keeping the current price, or. Increase price by 1% and have the same sales as this year. Increase price by 1% because the total variable cost is fixed and the allocation of fixed overheads 3 million (does not change) -- ur profits will increase if you raise the price by 1% Internal factors: marketing objectives (profit maximization), costs (fixed, variable, total costs), organizational considerations (who sets the price) External factors: nature of product/market (pure competition vs monopoly), competition, environmental factors (inflation, government controls) Cost based pricing: recover costs and make money on top of it (break even analysis)
