Concepts of Revenue
Total Revenue = Price x Qty
Average Revenue = TR
Marginal Revenue = ∆TR
TR = EMR
Demand for the product.
Meaning full surveys require
careful attention to each phase
of the process.
• Questions must be precisely
worded to avoid ambiguity.
• Survey sample must be properly
selected so that responses are
Market experiments are
designed to generate data prior
to full scale introduction of a
product or implementation of a
• Select a test market – several cities,
region or a sample of consumers
taken from a mailing list.
• Experiment may incorporate a
number of feature:
a)Evaluating consumer perceptions of
a new product.
b)Different prices for an existing
product may be set in various
cities to determine demand
c) Test of consumer reaction to a
new advertising campaign.
Market experiments have an
advantage over surveys in that they
reflect actual consumer behaviour.
However, there are risks involved.
a) In test market where prices are
increased consumers may switch to
products of competitors.
b) Result of some market experiments
can be influenced by bad weather,
changing economic conditions or
aacties of competitors.
c) Because most experiments are
relatively short during, consumers may
not be completely aware of pricing or
advertising changes. Thus, their
responses may understate the
probable impact of those changes.
Investment and Stock Markets
Economic theory suggests that rise and
falls in the stock market should bad
firms to change their rates of capital
investment in the same direction.
The relationship between stock price
and firm “investment in physical
capital in capture by the ‘Q theory of
investment’ by James Tobin.
Q Theory = Rate of investment in
any particular type of capital can
be predicated by looking at the
ratio of the capital’s market
value to its replacement cost.
Q = V
V = Stock Market value of a
K = Amount of capital firm
PK = Price of new capital
= Replacement cost of
firm’s capital stock.
Pricing Tactics & Strategies
• Cost oriented pricing.
• Competition oriented pricing
• Prices based upon other
Full Cost Pricing
P = AVC + AFC + Net profit
The actual price charged by the
firm depends upon potential
competition and general
economic environment – Born vs
Marginal Cost Pricing
MC = AVC or Short down point
Incremental cost pricing or M
Cost pricing is a short run
Rate of Return Pricing = A fixed
% mark up over cost.
• Profit as a fixed % of total sales.
• A fixed return on existing
Competition oriented Pricing
Pricing and not cost are the
Trade Association Pricing
Loss Leader Pricing
A loss leader is an item which
produces a less than customary
contribution or a negative
contribution but which is expected
to create profits on increased future
sales or sales of other items.