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- Cost-plus_pricing_with_elasticity_considerations abstract "One of the most common pricing methods used by firms is cost-plus pricing. In spite of its ubiquity, economists rightly point out that it has serious methodological flaws. It takes no account of demand. There is no way of determining if potential customers will purchase the product at the calculated price. To compensate for this, some economists have tried to apply the principles of price elasticity to cost-plus pricing.We know that:MR = P + ((dP / dQ) * Q)where: MR = marginal revenueP = price(dP / dQ) = the derivative of price with respect to quantityQ = quantitySince we know that a profit maximizer, sets quantity at the point that marginal revenue is equal to marginal cost (MR = MC), the formula can be written as:MC = P + ((dP / dQ) * Q)Dividing by P and rearranging yields:MC / P = 1 +((dP / dQ) * (Q / P))And since (P / MC) is a form of markup, we can calculate the appropriate markup for any given market elasticity by:(P / MC) = (1 / (1 - (1/E))) where:(P / MC) = markup on marginal costsE = price elasticity of demandIn the extreme case where elasticity is infinite:(P / MC) = (1 / (1 - (1/999999999999999))) (P / MC) = (1 / 1)Price is equal to marginal cost. There is no markup.At the other extreme, where elasticity is equal to unity:(P /MC) = (1 / (1 - (1/1))) (P / MC) = (1 / 0) The markup is infinite. Most business people do not do marginal cost calculations, but one can arrive at the same conclusion using average variable costs (AVC): (P / AVC) = (1 / (1 - (1/E))) Technically, AVC is a valid substitute for MC only in situations of constant returns to scale (LVC = LAC = LMC).When business people choose the markup that they apply to costs when doing cost-plus pricing, they should be, and often are, considering the price elasticity of demand, whether consciously or not.".
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- Cost-plus_pricing_with_elasticity_considerations wikiPageRevisionID "557334973".
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Category:Marketing.
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Category:Pricing.
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Cost-plus_pricing.
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Demand.
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Marketing.
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Markup_(business).
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Microeconomics.
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Outline_of_industrial_organization.
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Price_elasticity_of_demand.
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Pricing.
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLink Product_(business).
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLinkText "Cost-plus pricing with elasticity considerations".
- Cost-plus_pricing_with_elasticity_considerations wikiPageWikiLinkText "cost-plus pricing with elasticity considerations".
- Cost-plus_pricing_with_elasticity_considerations hasPhotoCollection Cost-plus_pricing_with_elasticity_considerations.
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- Cost-plus_pricing_with_elasticity_considerations wikiPageUsesTemplate Template:Unreferenced.
- Cost-plus_pricing_with_elasticity_considerations subject Category:Marketing.
- Cost-plus_pricing_with_elasticity_considerations subject Category:Pricing.
- Cost-plus_pricing_with_elasticity_considerations type Article.
- Cost-plus_pricing_with_elasticity_considerations type Article.
- Cost-plus_pricing_with_elasticity_considerations comment "One of the most common pricing methods used by firms is cost-plus pricing. In spite of its ubiquity, economists rightly point out that it has serious methodological flaws. It takes no account of demand. There is no way of determining if potential customers will purchase the product at the calculated price.".
- Cost-plus_pricing_with_elasticity_considerations label "Cost-plus pricing with elasticity considerations".
- Cost-plus_pricing_with_elasticity_considerations sameAs تسعير_على_أساس_التكلفة_الإضافية_مع_اعتبارات_المرونة.
- Cost-plus_pricing_with_elasticity_considerations sameAs m.01myks.
- Cost-plus_pricing_with_elasticity_considerations sameAs Q5174742.
- Cost-plus_pricing_with_elasticity_considerations sameAs Q5174742.
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- Cost-plus_pricing_with_elasticity_considerations isPrimaryTopicOf Cost-plus_pricing_with_elasticity_considerations.