Pricing
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?
Relationship between price and demand is that price affects demand — expensive less demand. Inverse relationship between price & quantity. As price decreases – demand increase. Marginal Revenue Is the additional (or negative) revenue reaped from lowering or increasing the product price by increments. Marginal Cost Is the cost associated with producing an additional good.
Marginal cost curve is often U-shaped – as more goods are produced, firms often experience increasing returns to scale.
What should a firm consider fairness when pricing its goods? Fairness is important because price determines at point if the product will be purchase, price is looked at as quality. There are a few things that are taken into consideration when it comes to pricing: the past price, close-substitute price, and context – what is the environment in which the purchase is being made.
3. How has the Internet enhanced opportunities for dynamic pricing strategies? Some opportunities are decreased menu cost: cost is associated with the changing prices of a product; in the internet its easy to change the price of products with less cost to the company unlike offline stores. Interactivity: it is easier for sellers and buyers to interact — it cost them less.
4. Why would a firm want to implement a price-discrimination strategy?
Reasons in why they would implement a price-discrimination strategy, there are three degrees of this strategy: first – its when a firm gets their customers into paying exactly what they are willing to pay for that product. Second – the firm tries to price the product at a price which they are willing to pay for the first purchase of the product but also willing to pay that price for additional purchases. Third – this has been the most common type, it groups individuals into categories 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 since the price is determine upon the willingness of the customer.
5. What is the difference between static and dynamic markets? Why must a firm consider its pricing strategy within the context of a dynamic market?
As the name implies, static markets pretty much stay the same but dynamic markets are constantly changing. Pricing strategies within the context of a dynamic market must be considered to follow the price fluctuation that for example top online retailers are imposing because it allows firms to be able to compete better and stay in the online business.