Understanding Pricing, Costs, And Profits For Industries

Price: Pricing decisions should take into account profit margins and probable pricing response of competitors.

Demand refers to the quantity of products people are willing and able to purchase during some specific time period, all other relevant factors being held constant. Price and quantity demanded stand in a negative (inverse) relationship: as price rises, consumers buy fewer units; and as price falls, consumers buy more units (Stone 75).

* Marginal Cost – The opportunity cost that arises from an increase in that activity

Economists have created a theory of demand which states the following. Demand curve has a downward slopping which shows the relation between price and quantity while all other factors are equal. At higher prices the demand will decrease, while at lower prices demand will increase.

The demand curve is used to show and predict future changes in the market. The demand curve is plotted on a grid with the prices on the y-axis and the quantity of good on the x-axis. The demand curve’s plots are made with lines that slope. When changes occur in the market, the demand curve will shift accordingly. When income increases the demand curve will shift outwards due to more goods being requested. Shifts can be caused due to a multitude of reasons including, but not limited to: changes in income, changes in preferences, changes in expectations, changes in the prices of competitors, changes in population and more. When the demand curve is combined with a supply curve, it can function as a multi-purpose graph that can also depict the equilibrium quantity, or the most efficient quantity of goods to be produced at the best

The setting of ‘fair’ prices to consumers: the company should bear in mind that customers nowadays will shop around to compare the intended products and services. However for the business survival and growth purposes, the company should also maintain its profit margins to ensure its business growth and expansion. The company needs to consider its cost factors and business operation areas to reduce or minimise the costing areas.

Marginal cost is the additional cost the you incur while producing an additional unit. To put this into context, it makes cost a certain amount to produce a car, but in order to keep making money you have to produce more than one car. Marginal cost asks the question how much would it cost to produce the second car. According to Chron the marginal cost for the first few units will unfortunately be much high, but will decrease as you produce more and more

Understanding the fundamental concepts of economics allows us to analyze laws that have a direct bearing on the economy. These laws and theories are essentially the backbone of how economics is used and studied. The law of demand can be expressed by stating that as long as all other factors remain constant, as prices rise, the quantity of demand for that product falls. Conversely, as the price falls, the quantity of demand for that product rises (Colander, 2006, p 91). Price is the tool used that controls how much consumers want based on how much they demand. At any given price a certain quantity of a product is demanded by consumers. As the price decreases, the quantity of the products demanded will increase. This indicates that more individuals demand the good or service as the price is lowered. This can be illustrated using the demand curve. The demand curve is a downward sloping line that illustrates the inversely related relationship of price and quantity demanded.

Though the market demand curve is downward sloping, each seller perceives the individual demand curve facing them to be perfectly elastic at the given price. Given this demand curve and their cost structures, sellers try to produce an output at which they can maximize profits.

According to the text book the law of demand states that “there is an inverse relationship between the price of a good or service and the quantity of it that consumers are willing to purchase”. That being said, in general the demand curve will be in a downward slope.

The demand curve shows what happens to the quantity demanded of a good when its price varies, holding constant all the other variables that influence buyers. When one or more of these other variables changes, the demand curve shifts leading to an increase or decrease in demand. The table below lists all the variables that influence how much consumers choose to buy cigarettes.4

2013, 3). What is the meaning of demand ? “demand is a relationship between price of the good and the quantity demanded of the good (Curtin University 2015).” The law of demand is, “Holding everything else constant, [ceteris paribus] when the price of a product increases the quantity demanded will fall, and when the price of a product decreases, the quantity demanded will rise (Curtin University 2015).” According to Curtin University, “Price and quantity demanded are negatively related, as the law of demand.” The demand curve In the figure 1, previously, customers who want to buy iPhone 6 in 16 GB storage must pay AU$869, however, they must pay more which the cost is AU$999 now and the quatity demanded from point X to point Y automatically decreases. It means that “there is a movement along from point A to point B because the price rises (Curtin University 2015).”

1. At the current level of output a firm's marginal cost equal 16 and marginal revenue equals 10. The firms

Total cost and marginal costs are related in terms of the production costs in service prodders and manufacturing firms. Marginal variation and total costs are used in calculating the total cost: total cost constitutes marginal costs (Samuelson & Marks, 2003). C. Define profit.

Change in Demand: The movement of Demand curve because of other factor not by the price i.e. buyers, tastes, income and expectations of buyers, preferences.