價格Pricing

1. Demand curve

It refers to the total quantity of a product or service that the buyers in a market would wish to buy in a given period. It depends on the price charged by suppliers. For most goods, as the price falls, demand for the goods rises.

The equation P=a+ b *Q

b slope=change in price/change in quantity

b normally negative, as the price falls, demand rises.

2. Elasticity of demand

The price elasticity of demand is the degree of sensitivity of demand for a good to changes in price of that good.

Formula:

Due to the changes in price, leads to changes in quantities.

If demand is highly elastic then increasing price may lead to reduce revenue. (Total revenue=Price*Quantity)

Demand is inelastic then price rises can increase revenue.

3. Marginal revenue邊際收入

Marginal revenue is the increase in total revenues that results from selling one more unit of a product or service. There are two effects on total revenue of selling one more unit.

An additional unit has been sold, this increases revenue.

To sell an extra unit, the price will have had to be reduced for all units sold, this reduces total revenue.

Marginal revenue=a+2bQ

When marginal revenue=0, the total revenue is maximized.

4. Marginal cost 邊際成本

This is the increase in total cost from producing and selling an additional unit of product or service. Initially, marginal cost falls, as output rises, due to economies of scale. Once the firm reaches its lowest marginal cost, however, marginal cost begins to rise as output increases further. Usually, marginal cost equals to variable cost.

5. Maximization of profits

When marginal cost =marginal revenue, profit is maximized.

6.Market skimming 撇脂法

Set very high launch price for new product (where customers are expected to pay more to be the first owners of a new product), must be new technology, later may need to reduce price as competitors enter the market.

Market penetration 市場滲透法

Set low launch price when entering an already competitive market. After gain the market share, later increase price towards competitors’ prices.