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
