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– Total Costs – are the sum of the fixed and variable costs for any given level of production.People Involved With Pricing – Management must decide who within the company should set prices.– In small companies, the top management often sets prices.
– Fixed Costs – are costs that do not change at all with production or sales level, ie/ bills, rent, salaries, interest.
They continue no matter what the production level is.
– Market-Share Leadership – other companies want to obtain the dominant market share.
To become the market-share-leader many companies will make their prices as low as possible.
– All companies must set prices on their products or services.
– These may come in many forms – You pay, rent, tuition, doctor’s fee’s, tariff’s, interest, toll, premium, salary, commission, wage, income taxes, etc etc.– Most companies would work quite hard today to become ‘low cost’ producers in their industries.Types of Costs – There are two types of costs, Fixed Costs and Variable Costs.– Variable Costs – vary directly with the level of production.If we make and sell fewer of a product, then we have lower variable costs.– Other Objectives – Companies can set prices low to prevent competition from entering the market or set prices at competitors’ levels to stabilise the market.Prices can be reduced to create rapid excitement, prices can be adjusted to increase the sales of other products in a range.Costs – Costs set the ground for the price that a company can charge for its product.– When setting a base price, the company takes in to consideration all costs for producing, distributing and selling the product and also gives a certain amount of flexibility for effort and risk.– Current Profit Maximisation – A lot of companies want to set a price that will maximise current profits.They estimate what demand and costs will be at different prices and choose the price that will produce the maximum current profit.