Factors to Consider When Setting Prices
Variable costs are the costs that vary with the level of production
Packaging
Raw materials
Company and Product Costs
Factors to Consider When Setting Prices
Total costs are the sum of the fixed and variable costs for any given level of production
Average cost is the cost associated with a given level of output
Company and Product Costs
Factors to Consider When Setting Prices
Experience or learning curve is when average cost falls as production increases because fixed costs are spread over more units
Factors to Consider When Setting Prices
Cost-plus pricing adds a standard markup to the cost of the product
Benefits
Sellers are certain about costs
Prices are similar in industry and price competition is minimized
Consumers feel it is fair
Disadvantages
Ignores demand and competitor prices
Factors to Consider When Setting Prices
Break-even pricing is the price at which total costs are equal to total revenue and there is no profit
Target profit pricing is the price at which the firm will break even or make the profit it’s seeking
Break-Even Analysis and Target Profit Pricing
Factors to Consider When Setting Prices
Customer perceptions of value set the upper limit for prices, and costs set the lower limit
Companies must consider internal and external factors when setting prices
Other Internal and External Considerations