1. 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?
For many items, when price goes up demand goes down and when price goes down demand goes up. for some items, inelastic ones, the price and demand are not inversely related. for example, gasoline or medication are needs so no matter how the price goes, the demand will remain the same. also, for luxury items the higher the price could lead to a higher demand. it’s important for a firm to price at the point where marginal revenue equals marginal cost because that way they won’t lost money and they won’t over price.
2. Why should a firm consider fairness when pricing its goods?
Because with all the competition that the internet offers customers need to feel as though they are being treated fairly.
3. How has the Internet enhanced opportunities for dynamic pricing strategies?
a. the set price mechanism: for example amazon does not always have to offer the lowest prices, but they offer a brand that people trust, convenience, and increased customer information.
b. the buyer/seller negotiated pricing mechanism: one-to-one vertical negotiations that take place around the world. it does take longer than fixed pricing to complete though.
c. auctions and exchanges: such as ebay, allow people to bid on items to try and get a good price.
4. Why would a firm want to implement a price-discrimination strategy?
Becuase it allows them to make the most money possible. without it, poeple who cannot afford something would never be able to buy it. this way, to an extent, more people are able to buy from the firm at differnt prices that work for the specific consumer.