MKTG 350: Chapter 13

marginal analysis

A continuing, concise trade-off of incremental costs against incremental revenues

Marginal Revenue Equation

Change in Total Revenue divided by Change in Quantity

Demand Factors

Consumer tastes, price and availability of similar products, and consumer income

Total cost equation

Fixed cost plus variable cost

Final Price Equation

List Price Minus Inventives + Allowances + Extra Fees

Price elasticity of demand equation

Percentage change in quantity demanded divided by percentage change in price

Total Revenue Equation

Price times Quantity

Average Revenue Equation

Total Revenue divided by Quantity

Profit Equation

Total Revenue minus Total Cost (Unit Price * Quantity Sold - Fixed Cost + Variable Cost)

Value Equation

Value = Perceived Benefits divided by price

Unit Variable Cost Equation

Variable Cost divided by Quantity

break-even chart

a graphic presentation of the break-even analysis that shows when total revenue and total cost intersect to identify profit o loss for a given quantity sold

Break-even analysis

a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output

Inelastic demand

exists when a 1% decrease in price produces less than a 1% increase in quantity demanded, thereby actually decreasing sales revenue

Elastic demand

exists when a 1% decrease in produces more than a 1% increase in quantity demanded, thereby actually increasing sales revenue

Unitary demand

exists when the percentage change in price is identical to the percentage change in quantity demanded so that sales revenue remains the same

pricing constraints

factors that limit the range of prices a firm may set

managing for long-run profits objective

giving up immediate profit by developing quality products to penetrate competitive markets over the long term

demand curve

graph relating the quantity sold and price, which shows the maximum number of units that will be sold at a given price

Sales objective

may be to increase sales revenue, which will in turn lead to increases in market share and profit

Pricing objectives

specifying the role of price in an organizations's marketing and strategic plans

Marginal Cost

the change in total cost that results from producing and marketing one additional unit of a product

Price elasticity of demand

the percentage change in quantity demanded relative a percentage change in price

value-pricing

the practice of simultaneously increasing product and service benefits while maintaining or decreasing price

break-even point (BEP)

the quantity at which total revenue and total cost are equal

unit volume

the quantity produced or sold

Price

the sum of all values that consumers give up in order to gain the benefits of having or using a product or service

Fixed cost

the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold

Variable cost

the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold

Total cost

the total expense incurred by a firm in producing and marketing a product

Unit Variable Cost

variable cost expressed on a per unit basis for a product