- What is the relationship between price and demand? Why is it important for a firm to price at the point at which marginal revenue is equal to marginal cost?
The relationship between price and demand is that the price affects demand. For example, +more expensive the -less demand for the item. Meanwhile, there is an inverse relationship between the price and the quantity. In case where an item is less availability the demand will increase. It is important that the price is at the point where the marginal revenue is equal to the marginal cost because it sets the balance between the products being set too cheap. Furthermore, it allows the company to set the margin where it can receive the most profit. The marginal revenue is the additional revenue collected from adjusting the product price. Marginal cost is the cost associated with producing an additional good. Marginal cost curve is often U-shaped when there are more goods produced.
- Why should a firm consider fairness when pricing its goods?
Firms need to consider fairness because the price plays a huge factor on whether the customer will make the purchase. There are times when customers will value the price as quality. In the other hand, if it is far too expensive customer will be turn off by the price. There are a few points that are taken into consideration when it comes to pricing: the past price, close-substitute price, and context. (meaning the surrounding in which the purchase is being made)
- how has the Internet enhanced opportunities for dynamic pricing strategies?
Some opportunities are decreased menu cost: this cost is associated with the changing of prices in a product. Through the internet, its easy to change the price of the products and with less cost to the company unlike offline stores. for example, a company can just go online and edit their pricing but if it is offline they will need to change the numbers on the tags, catalog pages, billboards, etc. All of the offline changes include cost and time. Interactivity is easier for sellers/buyers to interact. Plus is cheaper.
- why would a firm want to implement a price-discrimination strategy?
There are 3 degrees of the strategy, that are used to explain the reasons behind the price-discrimination strategy.
1st - it is when a firm gets their customers into paying exactly what they are willing to pay for that product.
2nd – this when the firm tries to price the product at a price in which they are willing to pay for the first purchase of the product. Furthermore, be willing to pay that price for additional purchases.
3rd- (it is the most used) They will group individuals according to what they are willing to pay. It has been important for firms to use these price-discrimination strategy because they are able to increase demand for their products. This is due to the fact that the price is determine upon the willingness of the customer to pay.
- what is the difference between static and dynamic markets? why must a firm consider its pricing strategies within the context of a dynamic marketer?
Static markets stay in the same place but dynamic markets are constantly changing. Pricing strategies within the context of a dynamic market must be considered to follow the price fluctuation. For example in which the top online retailers are imposing it because it allows firms to be able to compete better and stay in the online business.