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Two Factors Affecting Price (s)

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University of Toronto Scarborough
Management (MGM)

CHAPTER 7&8 TWO FACTORS AFFECTINGPRICE: 1. The cost of doing a business 2. The profit a company hopes to make KEY TERMS : - Profit: money left over once all expenses are paid. - Gross Profit: selling price minus the variable cost. Also known as contribution margin because its money that contributes to the paying of fixed cost - Variable Costs: depends on the quantity of goods sold or service preformed. Mostly used in the actual production or service. Example: raw materials, ingredients, commissions, etc. - Fixed Costs: are constant, independent of sales or other variable. Example: rent, salaries, utilities - Break-even point: number of units a business must sell at a given price to cover its costs. - Economics of Sales: the more products a company makes, the lower the cost of production for each item. W AYS TOU SEECONOMICS OF S ALE: 1. Develop Products for Private-Label Companies: - ,}ZZZ[< Z Z]ZZ:,Z Z}] < Z Z]Z 2. Creating a Barrier to Entry for Competitors: - Having a low price to discourage from new companies entering the market. Low prices will lead to increase in volume, thus lower cost per unit - Example: Wal-Mart 3. Creating New Brands: - Making the same product, under a different Brand Name - Example: Gap = Old Navy & Banana Republic 4. Merging with Competitions: - Reduce fixed costs because you are selling more but with less fixed costs - Example: TELUS & Clearnet , Sprint Canada & Rogers Page 1 www.notesolution.com
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