Peak-load pricing involves charging lower prices for goods and services during off-peak times when demand is lower, in order to encourage consumers to shift some consumption to those off-peak times. This makes more efficient use of production capacity and reduces costs for producers. Examples include phone companies charging less for calls at night and on weekends, and airlines charging higher fares during popular travel seasons. The strategy shifts some demand away from peak times and leads to more efficient capacity utilization.
This document provides an overview of collusive oligopoly and price leadership models. It defines collusive oligopoly as when oligopolistic firms make joint pricing and output decisions through agreement. Price leadership is described as an informal practice where one firm sets prices that other firms closely follow. Two types of price leadership are discussed: by a low-cost firm, and by a dominant firm that has large market share. The document also explains barometric price leadership, where the most experienced firm assesses market conditions and sets prices others willingly follow.
According to Baumol's theory, managers prioritize sales revenue maximization. He presents static and dynamic models of sales maximization. The static model assumes firms maximize sales or profits within a single period, ignoring future impacts. It shows sales maximizers accept lower profits by selling more units. The dynamic model assumes firms maximize their sales growth rate over time. It uses present value calculations to determine the sales and growth rate that provide the highest total present value of future sales revenues. Both models have limitations in fully capturing real-world cost and demand conditions.
This document discusses production economics and production functions. It defines a production function as relating the maximum output that can be produced from a given set of inputs. It then discusses the concepts of marginal product and average product in both numerical and graphical examples. It introduces the law of diminishing returns and three stages of production. Finally, it discusses long-run production functions and isoquants, and introduces the Cobb-Douglas production function.
This document provides an overview of economic concepts and analysis for business. It defines key terms like microeconomics, macroeconomics, positive and normative economics, short run and long run analysis, and partial and general equilibrium. It also discusses production possibility frontiers and the basic assumptions of economics. Managerial economics is introduced as the application of economic principles to managerial decision making within an organization. The roles of scarcity, opportunity cost, margins, and discounting in economic analysis are outlined. Finally, the document compares how capitalist, socialist, and mixed economies approach solving economic problems.
Price determination under oligopoly can occur through independent pricing, collusive pricing, or price leadership. There are several classical models of oligopoly including Cournot's model of duopoly, Bertrand's model of duopoly, and Edgeworth's duopoly model. Non-collusive oligopolies may lead to price wars if firms produce homogeneous goods. Under collusion, firms can jointly set prices or output to increase their bargaining power against consumers. Price leadership is a means for oligopolists to coordinate prices without explicit collusion, with the dominant firm initiating price changes that other firms follow.
Price discrimination exists when different prices are charged for the same product to different buyers. There are three main types of price discrimination: personal, geographical, and according to usage. Price discrimination is possible when there are differences in elasticity of demand, market imperfections, differentiated products, and legal sanctions or monopoly power. Price discrimination can occur through personal, geographical, or according to usage and is classified into three degrees based on how prices are set for individual units or groups.
This document provides an overview of collusive oligopoly and price leadership models. It defines collusive oligopoly as when oligopolistic firms make joint pricing and output decisions through agreement. Price leadership is described as an informal practice where one firm sets prices that other firms closely follow. Two types of price leadership are discussed: by a low-cost firm, and by a dominant firm that has large market share. The document also explains barometric price leadership, where the most experienced firm assesses market conditions and sets prices others willingly follow.
According to Baumol's theory, managers prioritize sales revenue maximization. He presents static and dynamic models of sales maximization. The static model assumes firms maximize sales or profits within a single period, ignoring future impacts. It shows sales maximizers accept lower profits by selling more units. The dynamic model assumes firms maximize their sales growth rate over time. It uses present value calculations to determine the sales and growth rate that provide the highest total present value of future sales revenues. Both models have limitations in fully capturing real-world cost and demand conditions.
This document discusses production economics and production functions. It defines a production function as relating the maximum output that can be produced from a given set of inputs. It then discusses the concepts of marginal product and average product in both numerical and graphical examples. It introduces the law of diminishing returns and three stages of production. Finally, it discusses long-run production functions and isoquants, and introduces the Cobb-Douglas production function.
This document provides an overview of economic concepts and analysis for business. It defines key terms like microeconomics, macroeconomics, positive and normative economics, short run and long run analysis, and partial and general equilibrium. It also discusses production possibility frontiers and the basic assumptions of economics. Managerial economics is introduced as the application of economic principles to managerial decision making within an organization. The roles of scarcity, opportunity cost, margins, and discounting in economic analysis are outlined. Finally, the document compares how capitalist, socialist, and mixed economies approach solving economic problems.
Price determination under oligopoly can occur through independent pricing, collusive pricing, or price leadership. There are several classical models of oligopoly including Cournot's model of duopoly, Bertrand's model of duopoly, and Edgeworth's duopoly model. Non-collusive oligopolies may lead to price wars if firms produce homogeneous goods. Under collusion, firms can jointly set prices or output to increase their bargaining power against consumers. Price leadership is a means for oligopolists to coordinate prices without explicit collusion, with the dominant firm initiating price changes that other firms follow.
Price discrimination exists when different prices are charged for the same product to different buyers. There are three main types of price discrimination: personal, geographical, and according to usage. Price discrimination is possible when there are differences in elasticity of demand, market imperfections, differentiated products, and legal sanctions or monopoly power. Price discrimination can occur through personal, geographical, or according to usage and is classified into three degrees based on how prices are set for individual units or groups.
Monopolistic competition refers to a market with many sellers offering differentiated but similar products. Key characteristics include:
1) Large numbers of buyers and sellers, but less than perfect competition. Sellers offer heterogeneous products.
2) Products are differentiated through branding and perceived differences, allowing sellers some monopoly power as price makers.
3) In the short run, firms maximize profits where marginal cost equals marginal revenue. In the long run, free entry leads to normal profits as the market reaches equilibrium with excess capacity.
1) Oligopoly is characterized by a small number of firms (3-9) that produce either homogeneous or differentiated products. The actions of each firm influence and depend on the actions of other firms in the market.
2) Sweezy's kinked demand curve model of oligopoly explains price rigidity. It assumes firms have downward sloping demand curves and will match price cuts but not price increases. This results in a "kinked" demand curve shape.
3) Firms may engage in collusion, price leadership, or mergers to reduce competition and act like a monopoly. However, collusion is difficult to maintain and illegal. Price leadership designates the largest firm as the price setter
The document discusses monopoly market structures. It defines a monopoly as a market with a single seller of a product without close substitutes. It notes that monopolies can arise through government protections, control of critical resources, or large capital requirements. The document then examines the characteristics of monopolies, including price setting behavior to maximize profits where marginal revenue equals marginal cost. It also explores various types of price discrimination strategies monopolies may use.
- Monopolies have market power that allows them to raise prices without losing all demand for their products. Barriers to entry like large capital requirements, patents, and government franchises can prevent competition in imperfectly competitive industries.
- A pure monopoly is a single firm that produces a unique product and faces no competition due to barriers that prevent other firms from entering the market. As the sole producer, the monopoly is the entire industry.
- Monopolies restrict output and charge higher prices than competitive firms, leading to inefficient resource allocation and welfare losses for society. Antitrust policy aims to promote competition and limit monopolies through legislation like the Sherman Act.
This document discusses price leadership models in oligopolistic markets. It defines price leadership as a situation where one dominant firm sets prices that other competitors feel compelled to match. There are three forms of price leadership discussed: low-cost price leadership, where the lowest cost firm leads prices; dominant price leadership, where the firm with the largest market share sets prices; and barometric price leadership, where the most reliable firm acts as a barometer of market conditions. Price leadership can provide price stability and prevent price wars while allowing smaller firms to benefit from a larger firm's cost information. However, price leadership is regulated to prevent illegal practices under India's MRTP Act.
Break even analysis determines the sales volume needed to cover total costs. It is calculated by dividing fixed costs by the difference between unit price and variable unit cost. It helps businesses determine the minimum sales needed to break even, examine effects on profits of different production levels, and decide if new products or prices will be profitable. However, it assumes costs remain constant and does not consider demand, so the actual break even point could differ from calculations if these assumptions do not hold.
This document discusses how to measure industry concentration to determine the market structure of an industry. There are two main measures:
1. Concentration ratio - Measures the percentage of total industry output produced by the largest 4 firms. A ratio over 40% indicates an oligopolistic market structure.
2. Herfindahl Index - Calculates the sum of the squared market shares of all firms in an industry. It ranges from 0 to 10,000 with scores over 1,800 indicating high concentration.
The document provides examples calculating both measures using hypothetical industry data. It interprets the results and explains how the Herfindahl Index improves on the concentration ratio by accounting for differences in the distribution of market shares among firms.
This document discusses the gains from international trade. It defines gains from trade as the advantages that countries enjoy through specialization and division of labor when participating in international trade. There are static and dynamic gains. Static gains come from short-term reallocation to comparative advantage sectors, while dynamic gains accumulate over time through factors like increased productivity and investment. Countries can measure gains from trade through approaches looking at reduced production costs, improved terms of trade, and increases in real income. Smaller countries tend to benefit more from trade than larger countries due to greater opportunities for specialization.
- Baumol's theory of sales maximization proposes that managers primarily aim to maximize sales revenue rather than profit.
- The static model of sales maximization assumes a single time period horizon and that firms will produce up to the point where marginal revenue equals marginal cost, even if this leads to profits below the minimum acceptable level, in order to maximize sales.
- The model is extended to include advertising, suggesting that sales-maximizing firms will spend more on advertising than profit-maximizing firms to further increase sales revenue.
The document discusses the concept of cost and various types of costs from the perspective of the theory of cost. It defines cost and explains opportunity cost versus actual cost. It then outlines 10 main types of costs including direct vs indirect costs, fixed vs variable costs, sunk vs incremental costs, and historical vs replacement costs. The document also discusses cost functions and how factors like output, scale, input prices, and technology influence the cost-output relationship in the short-run. Graphs and examples are provided to illustrate short-run total, average and marginal costs.
Arrow's Impossibility Theorem demonstrates that it is impossible to create a social welfare function that aggregates individual preferences into a collective social preference in a consistent, democratic manner when there are 3 or more alternatives. Arrow identified 5 criteria that any social welfare system should satisfy: collective rationality, responsiveness to individual preferences, non-imposition, non-dictatorship, and independence of irrelevant alternatives. However, his theorem showed that no voting system can simultaneously satisfy all 5 criteria. This finding challenged the notion that majority-rule voting can consistently translate individual preferences into a social ranking.
A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
The document discusses various cost concepts including:
- Opportunity cost and actual cost
- Business costs and full costs
- Explicit and implicit costs
- Short-run and long-run costs including fixed, variable, average, and marginal costs
- Traditional theories of costs including short-run cost curves and production rules
- Modern theories including the long-run average cost curve and concepts of economies and diseconomies of scale
Economic System- Capitalist,Socialist And Mixed economyPrakash Gautam
This slide includes animation so first Download and have a look,
The slides includes the brief introduction three economic system for Business environment analysis.
This document summarizes several theories of the firm, including:
1) Managerial theories propose that managers pursue maximum growth or sales revenue to increase their power, status, and job security rather than maximizing profits.
2) Baumol's theory suggests managers maximize sales subject to a minimum profit constraint.
3) Marris's theory argues managers maximize growth rates at the expense of future profits to satisfy their own utility functions.
4) Williamson's theory proposes managers maximize their own utility from variables like staff spending, benefits, and discretionary profits.
5) Cyert and March's behavioral theory defines the firm by its decision-making processes and argues managers set satisficing goals that reconcile various stakeholder interests
Transfer pricing refers to the price at which goods and services are transferred between divisions within the same organization. There are several methods of transfer pricing, including cost price, cost plus a markup, standard cost, market rate, shared profit relative to cost, and negotiated prices. Transfer pricing is needed for organizations with geographically dispersed divisions, multiple divisions with various requirements, and decentralized organizations where each department is responsible for its own profits.
This document outlines the key aspects of price discrimination including the three degrees of price discrimination. It defines price discrimination as a business charging different prices for the same good or service to different customer groups. The three conditions for price discrimination are that the firm must have market power, there must be differences in price elasticity of demand between groups, and no resale between groups. The three degrees of price discrimination are: first degree where each customer pays the maximum they are willing, second degree where bulk discounts are offered, and third degree where different customer segments face different prices. Examples and graphical representations are provided for each degree of price discrimination.
Williamson's Managerial Discretion Model (4).pptxdivysolanki170
The document provides an overview and explanation of Williamson's Managerial Discretion Model. Some key points:
- The model focuses on how managers make decisions within organizations, recognizing limitations in rationality and adaptability.
- Key concepts are bounded rationality, opportunism, and specific assets. Bounded rationality refers to cognitive constraints, while opportunism means self-interested actions. Specific assets are unique resources tied to transactions.
- The model represents managers' utility functions graphically using indifference curves between staff expenditures and discretionary profits, with the profit function determining the relationship between these variables.
The document discusses the concept of quasi rent. It defines quasi rent as a temporary gain earned by a factor of production due to a temporary limitation in its supply in the short run. Specifically:
- Quasi rent arises for capital equipment/machinery in the short run when its supply is fixed and it earns surplus over its transfer earnings.
- It is measured as the total revenue earned minus the total variable costs.
- Unlike economic rent which persists in both the short and long run, quasi rent disappears in the long run when the supply of the factor can be increased.
The document discusses various pricing methods and objectives that companies consider when setting prices. It identifies the key steps in determining pricing objectives, which include considering financial, marketing and strategic company objectives as well as consumer factors. Some common pricing objectives mentioned are maximizing profit, increasing sales or market share. The document then outlines different methods for setting prices, including based on costs, competition, demand as well as strategic approaches like price skimming, penetration pricing, bundled pricing and cross-subsidization.
The document discusses the concepts of inflation and the Phillips curve. It provides background on the Phillips curve, originally proposed in 1958, which suggested an inverse relationship between inflation and unemployment. It also discusses how the Phillips curve relationship broke down in the 1970s with the occurrence of stagflation, where inflation and unemployment rose simultaneously. The document explores potential reasons for shifts in the Phillips curve over time.
Target costing is a method of profit planning and cost management that focuses on designing costs out of products during the research and development stage. It aims to minimize design changes and costs during manufacturing. Cross-functional teams representing the entire value chain guide the process. Suppliers also play a critical role in reducing component costs through iterative value engineering. Potential issues include conflicts between parties, pressure to meet target costs distracting from other goals, and employee burnout from that pressure.
Monopolistic competition refers to a market with many sellers offering differentiated but similar products. Key characteristics include:
1) Large numbers of buyers and sellers, but less than perfect competition. Sellers offer heterogeneous products.
2) Products are differentiated through branding and perceived differences, allowing sellers some monopoly power as price makers.
3) In the short run, firms maximize profits where marginal cost equals marginal revenue. In the long run, free entry leads to normal profits as the market reaches equilibrium with excess capacity.
1) Oligopoly is characterized by a small number of firms (3-9) that produce either homogeneous or differentiated products. The actions of each firm influence and depend on the actions of other firms in the market.
2) Sweezy's kinked demand curve model of oligopoly explains price rigidity. It assumes firms have downward sloping demand curves and will match price cuts but not price increases. This results in a "kinked" demand curve shape.
3) Firms may engage in collusion, price leadership, or mergers to reduce competition and act like a monopoly. However, collusion is difficult to maintain and illegal. Price leadership designates the largest firm as the price setter
The document discusses monopoly market structures. It defines a monopoly as a market with a single seller of a product without close substitutes. It notes that monopolies can arise through government protections, control of critical resources, or large capital requirements. The document then examines the characteristics of monopolies, including price setting behavior to maximize profits where marginal revenue equals marginal cost. It also explores various types of price discrimination strategies monopolies may use.
- Monopolies have market power that allows them to raise prices without losing all demand for their products. Barriers to entry like large capital requirements, patents, and government franchises can prevent competition in imperfectly competitive industries.
- A pure monopoly is a single firm that produces a unique product and faces no competition due to barriers that prevent other firms from entering the market. As the sole producer, the monopoly is the entire industry.
- Monopolies restrict output and charge higher prices than competitive firms, leading to inefficient resource allocation and welfare losses for society. Antitrust policy aims to promote competition and limit monopolies through legislation like the Sherman Act.
This document discusses price leadership models in oligopolistic markets. It defines price leadership as a situation where one dominant firm sets prices that other competitors feel compelled to match. There are three forms of price leadership discussed: low-cost price leadership, where the lowest cost firm leads prices; dominant price leadership, where the firm with the largest market share sets prices; and barometric price leadership, where the most reliable firm acts as a barometer of market conditions. Price leadership can provide price stability and prevent price wars while allowing smaller firms to benefit from a larger firm's cost information. However, price leadership is regulated to prevent illegal practices under India's MRTP Act.
Break even analysis determines the sales volume needed to cover total costs. It is calculated by dividing fixed costs by the difference between unit price and variable unit cost. It helps businesses determine the minimum sales needed to break even, examine effects on profits of different production levels, and decide if new products or prices will be profitable. However, it assumes costs remain constant and does not consider demand, so the actual break even point could differ from calculations if these assumptions do not hold.
This document discusses how to measure industry concentration to determine the market structure of an industry. There are two main measures:
1. Concentration ratio - Measures the percentage of total industry output produced by the largest 4 firms. A ratio over 40% indicates an oligopolistic market structure.
2. Herfindahl Index - Calculates the sum of the squared market shares of all firms in an industry. It ranges from 0 to 10,000 with scores over 1,800 indicating high concentration.
The document provides examples calculating both measures using hypothetical industry data. It interprets the results and explains how the Herfindahl Index improves on the concentration ratio by accounting for differences in the distribution of market shares among firms.
This document discusses the gains from international trade. It defines gains from trade as the advantages that countries enjoy through specialization and division of labor when participating in international trade. There are static and dynamic gains. Static gains come from short-term reallocation to comparative advantage sectors, while dynamic gains accumulate over time through factors like increased productivity and investment. Countries can measure gains from trade through approaches looking at reduced production costs, improved terms of trade, and increases in real income. Smaller countries tend to benefit more from trade than larger countries due to greater opportunities for specialization.
- Baumol's theory of sales maximization proposes that managers primarily aim to maximize sales revenue rather than profit.
- The static model of sales maximization assumes a single time period horizon and that firms will produce up to the point where marginal revenue equals marginal cost, even if this leads to profits below the minimum acceptable level, in order to maximize sales.
- The model is extended to include advertising, suggesting that sales-maximizing firms will spend more on advertising than profit-maximizing firms to further increase sales revenue.
The document discusses the concept of cost and various types of costs from the perspective of the theory of cost. It defines cost and explains opportunity cost versus actual cost. It then outlines 10 main types of costs including direct vs indirect costs, fixed vs variable costs, sunk vs incremental costs, and historical vs replacement costs. The document also discusses cost functions and how factors like output, scale, input prices, and technology influence the cost-output relationship in the short-run. Graphs and examples are provided to illustrate short-run total, average and marginal costs.
Arrow's Impossibility Theorem demonstrates that it is impossible to create a social welfare function that aggregates individual preferences into a collective social preference in a consistent, democratic manner when there are 3 or more alternatives. Arrow identified 5 criteria that any social welfare system should satisfy: collective rationality, responsiveness to individual preferences, non-imposition, non-dictatorship, and independence of irrelevant alternatives. However, his theorem showed that no voting system can simultaneously satisfy all 5 criteria. This finding challenged the notion that majority-rule voting can consistently translate individual preferences into a social ranking.
A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
The document discusses various cost concepts including:
- Opportunity cost and actual cost
- Business costs and full costs
- Explicit and implicit costs
- Short-run and long-run costs including fixed, variable, average, and marginal costs
- Traditional theories of costs including short-run cost curves and production rules
- Modern theories including the long-run average cost curve and concepts of economies and diseconomies of scale
Economic System- Capitalist,Socialist And Mixed economyPrakash Gautam
This slide includes animation so first Download and have a look,
The slides includes the brief introduction three economic system for Business environment analysis.
This document summarizes several theories of the firm, including:
1) Managerial theories propose that managers pursue maximum growth or sales revenue to increase their power, status, and job security rather than maximizing profits.
2) Baumol's theory suggests managers maximize sales subject to a minimum profit constraint.
3) Marris's theory argues managers maximize growth rates at the expense of future profits to satisfy their own utility functions.
4) Williamson's theory proposes managers maximize their own utility from variables like staff spending, benefits, and discretionary profits.
5) Cyert and March's behavioral theory defines the firm by its decision-making processes and argues managers set satisficing goals that reconcile various stakeholder interests
Transfer pricing refers to the price at which goods and services are transferred between divisions within the same organization. There are several methods of transfer pricing, including cost price, cost plus a markup, standard cost, market rate, shared profit relative to cost, and negotiated prices. Transfer pricing is needed for organizations with geographically dispersed divisions, multiple divisions with various requirements, and decentralized organizations where each department is responsible for its own profits.
This document outlines the key aspects of price discrimination including the three degrees of price discrimination. It defines price discrimination as a business charging different prices for the same good or service to different customer groups. The three conditions for price discrimination are that the firm must have market power, there must be differences in price elasticity of demand between groups, and no resale between groups. The three degrees of price discrimination are: first degree where each customer pays the maximum they are willing, second degree where bulk discounts are offered, and third degree where different customer segments face different prices. Examples and graphical representations are provided for each degree of price discrimination.
Williamson's Managerial Discretion Model (4).pptxdivysolanki170
The document provides an overview and explanation of Williamson's Managerial Discretion Model. Some key points:
- The model focuses on how managers make decisions within organizations, recognizing limitations in rationality and adaptability.
- Key concepts are bounded rationality, opportunism, and specific assets. Bounded rationality refers to cognitive constraints, while opportunism means self-interested actions. Specific assets are unique resources tied to transactions.
- The model represents managers' utility functions graphically using indifference curves between staff expenditures and discretionary profits, with the profit function determining the relationship between these variables.
The document discusses the concept of quasi rent. It defines quasi rent as a temporary gain earned by a factor of production due to a temporary limitation in its supply in the short run. Specifically:
- Quasi rent arises for capital equipment/machinery in the short run when its supply is fixed and it earns surplus over its transfer earnings.
- It is measured as the total revenue earned minus the total variable costs.
- Unlike economic rent which persists in both the short and long run, quasi rent disappears in the long run when the supply of the factor can be increased.
The document discusses various pricing methods and objectives that companies consider when setting prices. It identifies the key steps in determining pricing objectives, which include considering financial, marketing and strategic company objectives as well as consumer factors. Some common pricing objectives mentioned are maximizing profit, increasing sales or market share. The document then outlines different methods for setting prices, including based on costs, competition, demand as well as strategic approaches like price skimming, penetration pricing, bundled pricing and cross-subsidization.
The document discusses the concepts of inflation and the Phillips curve. It provides background on the Phillips curve, originally proposed in 1958, which suggested an inverse relationship between inflation and unemployment. It also discusses how the Phillips curve relationship broke down in the 1970s with the occurrence of stagflation, where inflation and unemployment rose simultaneously. The document explores potential reasons for shifts in the Phillips curve over time.
Target costing is a method of profit planning and cost management that focuses on designing costs out of products during the research and development stage. It aims to minimize design changes and costs during manufacturing. Cross-functional teams representing the entire value chain guide the process. Suppliers also play a critical role in reducing component costs through iterative value engineering. Potential issues include conflicts between parties, pressure to meet target costs distracting from other goals, and employee burnout from that pressure.
The document discusses various pricing strategies used by companies based on market structure and competitive environment. It describes the key characteristics and pricing approaches for perfect competition, monopoly, oligopoly and monopolistic competition. Specific strategies covered include penetration pricing, market skimming, value pricing, loss leaders, psychological pricing, price discrimination, discounts and allowances.
The document discusses various pricing strategies and determinants of price. It covers cost-based pricing approaches like cost-plus pricing and marginal cost pricing. It also discusses competition-based pricing strategies like penetration pricing. Other topics include product life cycle pricing, price discrimination, export pricing, and peak load pricing. The key factors that influence pricing decisions are the degree of competition, objectives of the firm, costs of production, demand in the market, and supply of the product.
Price discrimination occurs when identical goods or services are sold at different prices by the same provider. The goal is to charge each customer the maximum price they are willing to pay. Perfect price discrimination involves charging each customer their exact reservation price, maximizing profits but eliminating consumer surplus. Price discrimination takes various forms in practice, including peak/off-peak pricing for utilities, and offering different ticket prices to business vs leisure travelers for airlines. While it increases profits, price discrimination can be seen as unfair by consumers who pay higher prices than others.
Business Economics 09 Market Structures & Pricing StrategyUttam Satapathy
The document discusses different market structures and pricing strategies. It covers four main market structures - perfect competition, monopoly, monopolistic competition and oligopoly. It describes their characteristics including number of firms, product differentiation, and degree of control over prices. Pricing strategies discussed for firms with market power include price discrimination, peak load pricing, cross subsidies and limit pricing. Real world examples of cartels like OPEC and pricing strategies used by airlines and electricity boards are provided.
Students should be able to:
Explain and evaluate the potential costs and benefits of monopoly to both firms and consumers, including the conditions necessary for price discrimination to take place
Diagrams should also be used to support the understanding of price discrimination
Economics studies how societies deal with scarcity and make choices about resources. It examines both incomes/prices and also how to decide when markets are appropriate versus other solutions. While economics began focusing on wealth, it now considers human welfare and studies choices between unlimited wants and limited/scarce means. Definitions have evolved from wealth to also incorporate welfare, choice, and growth. Economics employs both scientific and practical approaches, using measurement but also offering policy solutions. It aims to positively explain economic systems while not passing judgement on ends.
National income or national product is defined as the total market value of all final goods and services produced in an economy over a period of time. There are three main concepts used to measure national income - gross national product, net national product, and national income. National income can be estimated using the product method, income method, and expenditure method. However, there are several difficulties in accurately estimating a country's national income, particularly in less developed countries, such as accounting for non-monetary transactions, production not entering the market, and lack of record keeping.
The document discusses various cost concepts and classifications that are important for business decision making, including classifying costs as fixed, variable, or mixed based on their behavior in relation to changes in business activity levels. It also covers calculating cost-volume relationships, break-even analysis, and differential costs to evaluate alternatives and their trade-offs. Opportunity costs and marginal analysis are introduced as tools to assess the potential benefits forgone by choosing one option over another.
Chapter 8 pricing strategies for firms with market powerskceducation
This chapter discusses pricing strategies for firms with market power. It introduces concepts such as monopoly pricing rules, price discrimination strategies including first, second and third degree discrimination. The chapter also covers pricing for monopolistic competition and discusses strategies for intense price competition between oligopolies such as price matching and inducing brand loyalty. Special pricing considerations like cross-subsidies, transfer pricing, and double marginalization are also addressed.
1. The document provides an analysis of ABC Company's business environment, unit economics, and recommendations for improving profitability.
2. It finds that ABC has the highest fixed costs and lowest contribution per unit of the competitors analyzed, leaving it vulnerable.
3. To address this, it recommends strategies like reducing material, labor, and overhead costs through various efficiency improvements, as well as reducing fixed costs by rightsizing assets or outsourcing non-core functions.
4. If successful, these recommendations could lower ABC's break-even point and risk, allowing for smoother operations and improved financial results.
Product mix pricing strategies involve setting prices for multiple related products to maximize overall profits. Key strategies include:
1) Product line pricing which sets price steps between similar products like "good-better-best".
2) Optional product pricing where high margins are set for optional accessories to generate profits.
3) Captive product pricing which recovers costs through high margins on supplies that must be used with the main product.
4) Two-part pricing uses a fixed fee plus variable usage rates for services like cellular plans or amusement parks.
Pricing by-products and product bundles also aims to earn extra profits or clear excess inventory.
This document provides an overview of transfer pricing. It defines transfer pricing as the price at which divisions of a company transact with each other. The document outlines several purposes of transfer pricing, including evaluating division performance and shifting profits between tax jurisdictions. It also discusses transfer pricing methods, influences on companies, disadvantages, and provides an example to illustrate how transfer pricing can benefit a company.
The document defines efficiency as producing goods and services at the lowest possible cost to provide the greatest value. Markets are efficient when marginal cost equals marginal benefit. When price is lower than value, consumers enjoy surplus, and when price exceeds costs, producers earn surplus. However, markets can be inefficient due to price controls, taxes/subsidies, monopoly, public goods, and externalities, resulting in deadweight loss to society.
This document provides an overview of demand and supply analysis, including different types of costs and cost-output relationships. It discusses:
1) Types of costs like fixed costs, variable costs, total costs, and marginal costs.
2) Cost-output relationships in the short run and long run. In the short run, average fixed cost decreases with output while average variable cost remains constant.
3) Pricing techniques including cost-plus pricing, marginal cost pricing, going rate pricing, and target pricing. Cost-plus pricing adds a percentage markup to total costs, while marginal cost pricing focuses on variable costs.
- Market structure refers to the level of competition within a market. The main types are perfect competition, monopoly, monopolistic competition, and oligopoly.
- Under perfect competition, there are many small producers and consumers of a standardized product, while a monopoly has a single producer and no close substitutes. Monopolistic competition features product differentiation and free entry/exit of many firms. Oligopoly has a small number of interdependent producers controlling the market.
- Profit maximization occurs where marginal revenue equals marginal cost under perfect competition and monopolistic competition. A monopoly chooses output where marginal revenue is zero. Pricing strategies depend on market structure and include cost-plus, penetration, skimming, and prestige pricing.
The document discusses various pricing strategies and concepts including:
- Markup pricing which involves adding a percentage markup to costs to determine price.
- Target return pricing which sets price to cover a product's unit cost plus a portion of fixed costs and desired return on investment.
- Break-even analysis which calculates the sales volume needed to cover total fixed costs at a given price-cost margin.
This document discusses pricing strategies for firms with market power. It explains how firms can maximize profits by setting price where marginal revenue equals marginal cost. The document also discusses various pricing strategies including price discrimination, cross subsidies, transfer pricing, and strategies to mitigate intense price competition. Firms can extract consumer surplus through these various pricing strategies.
This document provides an overview of key economic concepts related to the price system and theory of the firm. It covers topics such as demand and supply, costs of production, market structures, and profit maximization. Several examples and exercises are provided to illustrate key points. The document is intended as a supplemental guide for students taking an A-Level Economics course. It defines important terminology and uses graphs and data to explain fundamental economic principles in the subject areas.
Be chap7 pricing strategies for firms with market powerfadzliskc
This document discusses pricing strategies for firms with market power. It explains how firms can maximize profits by setting price where marginal revenue equals marginal cost. The document also discusses different pricing strategies firms can use such as price discrimination, cross subsidies, transfer pricing, and price matching which allow firms to increase profits or mitigate competition. Special pricing rules are needed to address issues like double marginalization. Overall, the document provides an overview of various pricing concepts and strategies firms can employ when they have some market power.
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Principles of marketing topic 6 price 2021znurul anis
The document discusses various types of pricing strategies and concepts. It begins by defining key terms like cost, price, and different pricing strategies such as good-value pricing and value-added pricing. It then covers customer value-based pricing, cost-based pricing including incremental cost pricing and break-even analysis. Competitive based pricing and types like pricing at the current rate and closed bid pricing are explained. The document also discusses market skimming and penetration pricing strategies and concludes by summarizing product mix pricing strategies such as product line pricing, optional features pricing, captive product pricing, by-product pricing, and product bundle pricing.
A very simple yet precise description of costing and pricing,with examples of both.help for both management and engineering students,specially for entrepreneurship development.like.comment and share.
1. Cost of production refers to the payments made to factors of production and depends on the quantity of output. It can be expressed as a function of output.
2. Costs are classified into several types including money cost, opportunity cost, and private, external, and social costs.
3. Total cost is the sum of explicit costs, which are payments made to outsiders, and implicit costs, which are rewards for self-owned resources.
Natural monopolies arise due to high startup costs and significant economies of scale that allow only one efficient firm. They are often regulated to protect consumers. Examples include utilities, internet providers, and railroads. A natural monopoly exists naturally due to market forces, unlike regular monopolies formed by eliminating competition. Natural monopolies have high fixed costs and barriers to entry that prevent competition. They maximize profits by pricing in the elastic portion of demand rather than the inelastic portion where price changes have little effect on revenue.
This document discusses various pricing methods used by businesses:
- Demand-oriented pricing sets price based on supply and demand. Cost-oriented pricing bases price on production costs. Competition-oriented pricing matches competitors' prices. Value-based pricing sets price according to what customers perceive a product is worth.
- Other methods discussed include penetration pricing (low initial price), price skimming (high initial price lowered over time), differential pricing (varying prices for different customer segments), and perceived-value pricing (basing price on non-cost attributes customers value).
- Factors like demand elasticity, production volumes, competition levels, and market conditions influence which pricing strategy is best for a given product and business situation.
This document discusses concepts related to cost analysis and production functions. It defines different types of costs such as fixed costs, variable costs, total costs, average costs and marginal costs. It also discusses the cost-output relationship in the short run and how total cost is composed of total fixed cost and total variable cost. The document then defines different types of revenue such as total revenue, average revenue and marginal revenue. It also explains the production function and how it shows the relationship between inputs and maximum possible output. Finally, it discusses the law of variable proportions, economies of scale, diseconomies of scale and what an isoquant is.
The document discusses self-confidence and how to build it. It defines self-confidence as trusting one's own abilities and qualities. It recommends identifying personal talents, taking pride in positive qualities, recognizing insecurities, and learning from mistakes. Building self-confidence takes time and involves focusing on strengths, appreciating good traits, acknowledging weaknesses, and bouncing back from errors.
Fredrik Idestam founded Nokia in 1867 as a rubber and cable company, and it expanded into telecommunications in the late 1970s. Nokia grew significantly with early investments in GSM technology, becoming the largest mobile phone manufacturer. However, Nokia struggled after 2007 with the rise of iPhone and Android, losing market share. In 2013, Microsoft acquired Nokia's mobile phone business for $5.4 billion, in an attempt to strengthen its presence in mobile, but Nokia now focuses on licensing patents and networking equipment through Nokia Networks.
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The document provides the rankwise results of the 1st semester exams. Syeda Fouzia Unnisa ranked first with 77% marks. Momina Begum and Mohammad Ibrahim ranked second and third respectively. The results include the ranks, roll numbers, names, marks and percentages of the top 148 students.
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The document discusses different types of plant layouts. It describes four main types: product layout, process layout, fixed position layout, and combined layout. Product layout involves materials moving sequentially between workstations with minimal backtracking. Process layout groups similar machines together. Fixed position layout fixes major production facilities in one location and brings other facilities to them. Combined layout is used when multiple products are produced in batches using a mix of layout types. The objectives of layout include minimizing costs and space while improving efficiency, safety, and productivity.
Aggregate planning determines the resource capacity needed to meet demand over an intermediate time horizon. Its objectives are to establish a company-wide game plan for allocating resources and develop an economic strategy for meeting demand. Strategies for adjusting capacity include level production, chasing demand, peak demand, overtime/under-time, subcontracting, and part-time workers. Strategies for managing demand include shifting demand to other time periods, sales promotions, advertising, and partnering with suppliers. Aggregate forecasts are more accurate than individual detailed forecasts.
This document discusses etiquettes for teachers and is authored by Hadhrat Moulana Siddique Ahmad Baandwi Sahib (R.A.). It provides 10 key etiquettes that teachers should follow, including having compassion for students, sincerity of intention, focusing on student welfare, nurturing students' character development, keeping student time and abilities in mind, avoiding faults of others, reducing lessons to student levels, acting in students' best interests, appropriate service expectations from students, and practicing one's own knowledge. The introduction emphasizes the importance of Islamic education and following the exemplary ways of pious predecessors.
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Intermodal transport involves using more than one mode of transportation for the same transport container to integrate advantages of different transport modes. It aims to achieve an effective combination of cost, delivery time, and service quality. Key features include using standard transport units that are suitable for loading, carriage, and unloading while maintaining compatibility across the transportation process chain.
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VMI is an inventory management strategy where the manufacturer monitors and manages inventory levels at the distributor/retailer. It shifts decision making responsibility upstream to better support integrated supply chain objectives. Typical benefits include lower inventory costs and better planning for manufacturers and fewer stockouts and optimal product mixes for retailers. Key success factors include top management commitment, effective information systems, trust between partners, and competent forecasting abilities.
Multimodal transport involves using at least two different modes of transportation, such as rail, sea, and road, to transport goods under a single contract. The carrier is legally responsible for the entire journey even if multiple sub-carriers perform each leg. Freight forwarders often act as multimodal transport operators, taking on greater liability as carriers rather than just agents.
This document discusses various modes of transportation used in supply chains including motor/trucking, air, rail, water, pipeline, and intermodal. It outlines the key strengths and weaknesses of each mode such as trucks being accessible but slower than air, rail having low costs but inflexibility, water being best for large volumes over long distances but slower, and intermodal using multiple modes. The document also notes that pricing of transportation is based on handling characteristics, distance, weight, and an inverse relationship with speed of service.
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International logistics involves managing the flow of materials, services, and information internationally. It allows firms to implement cost-saving programs like JIT and EDI. International logistics managers must consider transportation infrastructure, modes of transport like ocean vessels, airfreight, and their associated costs and limitations. They must also address international inventory, packaging, storage, and documentation issues. Firms can utilize options like centralized management, decentralization, or outsourcing for their international logistics needs. The internet and security concerns also impact international supply chains, while environmental regulations vary globally.
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1. Peak-Load Pricing
When demand is not evenly distributed, a firm needs to have
facilities to accommodate periods of high demand.
Even with large facilities, the firm may experience times when
the demand is greater than can be handled. Then the firm
may experience costly computer system crashes.
During off-peak times (periods of lower demand), there is
excess capacity.
The firm charges less at off-peak times.
Example: More phone calls are made during business hours
than in the evenings and on weekends. So the phone
companies charge more during business hours.
2. Peak load pricing
• The effect of peak-load pricing is to induce some
consumption to shift, away from the times of
• peak demand, and toward times of lower
demand. Consumers are rewarded -- in the sense
that they pay
• less -- for using the service when there is ample
unutilised capacity, rather than when demand
takes up
• or even exceeds all the capacity. This makes for
more efficient use of existing capacity.
3. Peak load pricing
• Telephone service providers, for
instance, charges a lower call rate from 11:00
pm to 6:00am. Long distance calls made
during off-peak periods also cost less. Some
“decongestion” results from this practice.
• The same outcome happens when airlines
charge higher fares during the tourist season.
4. Peak load pricing
• This shifting of consumption creates what economists
call “efficiency gains.” If airfares were kept uniform,
airlines would forego profits because they have to turn
away passengers when flights are fully booked, while
other flights take off with a lot of empty seats.
• The “average” price has the effect of encouraging
higher consumption during peak periods and lower
consumption during off-peak periods -- which
producers and consumers don’t really want.
5. Peak load pricing
• The high demand at certain hours would
compel the producers to install additional
capacity. Producers would have to pump in
additional capital, and pass the cost on to
consumers. However, the increased capacity
becomes even more under-utilized during the
off-peak hours.
6. Peak load pricing
• The effect of peak-load pricing is to induce some
consumption to shift, away from the times of
peak demand, and toward times of lower
demand. Consumers are rewarded -- in the sense
that they pay less -- for using the service when
there is ample unutilised capacity, rather than
when demand takes up or even exceeds all the
capacity. This makes for more efficient use of
existing capacity.
7. Two- Part Tariffs
• Two- Part Tariffs Consumers pay a one-time access fee
(T) for the right to buy a product, and a per-unit price
(P) for each unit they consume.
• Examples: Amusement parks, Golf Clubs, T-passes,
• Necessary conditions for Two-Part Tariff
implementation:
• Firm must have market power
• Firm must be able to control access
• Homogeneous consumer demand (all the consumers
within the same segment have the same demand
curve)
8. Example
• Some video game stores offer customers two
ways to rent cds:
• (i) Pay an annual membership fee (e.g., $40), and
then pay a small fee for the daily rental of each
film (e.g., $2 per film per day) (Two part Tariff)
• (ii) Pay no membership fee, but pay a higher daily
rental fee (e.g., $4 per game per day) (Simple
rental fee) Why might it be more profitable to
offer consumers a choice of two plans, rather
than a single plan for all customers?
•
9. Example
• A classic price discrimination example. The store
has created a menu of choices where each plan
appeals to a different group of consumers that
will self select into the option designed for them.
The high demand consumer will probably choose
the two-part tariff, while the casual consumer will
prefer the simple rental fee.
• Profits will be greater with price discrimination
than with a single pricing scheme for all
customers
10. The “Two-Part Tariff”
• There are two components to the price: a unit
price (P) for each unit consumed, & a “tariff”
(T) for entry into the market.
• Examples include telephone service, health
clubs, etc.
• The tariff enables the firm to capture some
consumer surplus.
11. Suppose that a firm has constant average and marginal costs as
shown.
Also, each customer has the indicated demand
curve.
Suppose that the firm charges price P* per unit.
P
Based on the per unit charge, the firm earns
revenues equal to the area of the blue box.
P*
ATC=MC
D
Q
Q*
12. The firm can also pick up the consumer surplus,
if it charges a membership fee equal
• P to the area of the green triangle.
P*
ATC=MC
D
Q
Q*
13. Bundling
• Bundling is packaging two or more products to
gain a pricing advantage.
• Conditions necessary for bundling to be the
appropriate pricing alternative:
• Customers are heterogeneous.
• Price discrimination is not possible.
• Demands for the two products are negatively
correlated.
14. Bundling
• Bundling Bundling refers to selling more than one
product at a single price.
• When is bundling applicable:
• The firm has market power
• Price discrimination is not possible (inability to
offer different prices to different customers or
segments)
• Demand for two or more goods to be sold is
negatively correlated (the more consumers
demand one good, the less they will demand of
the other good)
15. Types of bundling
• Pure Bundling: Consumers must buy both
goods together; the choice of buying one
good without buying the other is NOT given.
• Mixed Bundling: Consumers have the choice
of buying both goods or buying one good
without the other.
16. Consider the following reservations prices,
for two buyers: Alan and Beth
Sum of
Stereo TV reservation
prices
Alan $225 $375 $600
Beth $325 $275 $600
Maximum price for
$225 $275
both to buy the good
To get both people to buy both goods without bundling, you can
only charge $225 + $275 = $500, & each person would have
consumer surplus of $600 – $500 = $100.
If you bundle, you can charge $600 & consumer surplus = 0.
17. Transfer Pricing
• Sometimes firms are organized into separate
divisions.
• One division may produce an intermediate
product and supply it to another division to
produce the final product.
• How does the firm determine the efficient
price at which the intermediate product
should be sold. That is, what is the transfer
price?
18. The Simplest Case
• The firm has 2 divisions: E and A
• Division E produces the intermediate product (engine) for
Division A which produces the final product (automobile).
• Division E does not sell engines to anyone but division
A, and division A does not buy engines from anyone but
division E.
• Each unit of output (automobile) requires one unit of the
input (engine).
• The goal is to maximize the firm’s profit.
19. How do we determine the optimal quantity & price for the
final product (the auto)?
•First, find the company’s (total) marginal cost MCT, which is
the marginal cost of division E’s producing an engine (MCE)
plus the marginal cost of division A’s producing an auto
(MCA).
•That is, MCT = MCA + MCE .
•Then, produce the amount of output (autos) so that the
marginal revenue from selling an auto (MR) is equal to the
marginal cost of production (MCT).
•The appropriate price of the auto for that quantity of
output is determined from the demand curve for the firm’s
autos.
20. Transfer pricing
Transfer Price is:
the internal price charged by one segment of a firm for a
product or service supplied to another segment of the same
firm
Such as:
• Internal charge paid by final assembly division for
components produced by other divisions
• Service fees to operating departments for
telecommunications, maintenance, and services by support
services departments
20
21. Transfer Pricing
• The transfer price creates revenues for the
selling subunit and purchase costs for the
buying subunit, affecting each subunit’s
operating income
• Intermediate Product – the product or service
transferred between subunits of an
organization
21
22. Effects of Transfer Prices
Performance measurement:
• Reallocate total company profits among business
segments
• Influence decision making by purchasing, production,
marketing, and investment managers
Rewards and punishments:
• Compensation for divisional managers
Partitioning decision rights:
• Disputes over determining transfer prices
22
23. Three Transfer Pricing Methods
1. Market-based Transfer Prices
2. Cost-based Transfer Prices
3. Negotiated Transfer Prices
23
24. Market-Based Transfer Prices
• Top management chooses to use the price of a
similar product or service that is publicly
available. Sources of prices include trade
associations, competitors, etc.
24
25. Market-Based Transfer Prices
• Lead to optimal decision making when three
conditions are satisfied:
1. The market for the intermediate product is
perfectly competitive
2. Interdependencies of subunits are minimal
3. There are no additional costs or benefits to the
company as a whole from buying or selling in the
external market instead of transacting internally
25
26. Market-Based Transfer Prices
• A perfectly competitive market exists when there is a
homogeneous product with buying prices equal to selling
prices and no individual buyer or seller can affect those
prices by their own actions
• Allows a firm to achieve goal congruence, motivating
management effort, subunit performance evaluations,
and subunit autonomy
• Perhaps should not be used if the market is currently in a
state of “distress pricing”
26
27. Cost-Based Transfer Prices
• Top management chooses a transfer price based on the
costs of producing the intermediate product. Examples
include:
– Variable Production Costs
– Variable and Fixed Production Costs
– Full Costs (including life-cycle costs)
– One of the above, plus some markup
• Useful when market prices are
unavailable, inappropriate, or too costly to obtain
27
28. Negotiated Transfer Prices
• Occasionally, subunits of a firm are free to negotiate the
transfer price between themselves and then to decide
whether to buy and sell internally or deal with external
parties
• May or may not bear any resemblance to cost or market
data
• Often used when market prices are volatile
• Represent the outcome of a bargaining process between
the selling and buying subunits
28
29. Comparison of
Transfer-Pricing Methods
Criteria Market- Cost- Negotiated
Based Based
Achieves Goal Yes, when Often, but not Yes
Congruence markets are always
competitive
Useful for Yes, when Difficult unless Yes, but transfer
Evaluating Subunit markets are transfer price prices are affected
Performance competitive exceeds full cost by bargaining
strengths of the
buying and selling
divisions
29
30. Comparison of
Transfer-Pricing Methods
Criteria Market- Cost- Negotiated
Based Based
Motivates Yes Yes, when based on Yes
Management budgeted costs;
Effort less incentive to
control costs if
transfers are based
on actual costs
Preserves Subunit Yes, when No, because it is Yes, because it is
Autonomy markets are rule-based based on
competitive negotiations
between subunits
30
31. Comparison of
Transfer-Pricing Methods
Criteria Market- Cost- Negotiated
Based Based
Other Factors No market may Useful for Bargaining and
exist or determining negotiations
markets may full cost of take time and
be imperfect or products; easy may need to be
in distress to implement reviewed
repeatedly as
conditions
change
31
32. Minimum Transfer Price
• The minimum transfer price in many situations should
be:
Incremental cost per unit
Minimum incurred up to the point of Opportunity Cost per unit
Transfer Price = transfer + to the selling subunit
– Incremental cost is the additional cost of producing and
transferring the product or service
– Opportunity cost is the maximum contribution margin forgone
by the selling subunit if the product or service is transferred
internally
32
33. Transfer Pricing for International Taxation
When products or services of a multinational firm are transferred between segments
located in countries with different tax rates, the firm attempts to set a transfer price
that minimizes total income tax liability.
Segment in higher tax country:
Reduce taxable income in that country by charging high prices on imports and low
prices on exports.
Segment in lower tax country:
Increase taxable income in that country by charging low prices on imports and high
prices on exports.
33