Question

Lowering the price from $ 3.50 to $ 2.25 results in an output effect of ​$ nothing and a price effect of ​$ nothing. ​(Enter your responses as whole numbers and include a minus sign if​ necessary.)

Answer 1

Lowering the price from $3.50 to $2.25 results in an output effect of $2.25 and a price effect of -$1.25

The pricing decisions for a product are affected by internal and external factors.

A. Internal Factors:

1. Cost:

While fixing the prices of a product, the firm should consider the cost involved in producing the product. This cost includes both the variable and fixed costs.

2. The predetermined objectives:

While fixing the prices of the product, the marketer should con­sider the objectives of the firm. For

3. Image of the firm:

The price of the product may also be determined based on the image of the firm in the market. For instance, HUL and Procter & Gamble can demand a higher price for their brands, as they enjoy goodwill in the market.

4. Product life cycle:

The stage at which the product is in its product life cycle also affects its price.

5. Credit period offered:

The pricing of the product is also affected by the credit period offered by the company.

6. Promotional activity:

The promotional activity undertaken by the firm also determines the price. If the firm incurs heavy advertising and sales promotion costs, then the pricing of the product shall be kept high in order to recover the cost.

B. External Factors:

1. Competition:

While fixing the price of the product, the firm needs to study the degree of competi­tion in the market. If there is high competition, the prices may be kept low to effectively face the competition, and if competition is low, the prices may be kept high.

2. Consumers:

The marketer should consider various consumer factors while fixing the prices. The consumer factors that must be considered includes the price sensitivity of the buyer, purchasing power, and so on.

3. Government control:

Government rules and regulation must be considered while fixing the prices. In certain products, government may announce administered prices.

4. Economic conditions:

The marketer may also have to consider the economic condition prevail­ing in the market while fixing the prices.

5. Channel intermediaries:

The marketer must consider several channel intermediaries and their expectations. The longer the chain of intermediaries, the higher would be the prices of the goods.

Answer 2

Question: Sally runs a vegetable stand. The following table shows two points on the demand curve for the heirloom tomatoes she​ sells:

Price Quantity demanded per week

$ 3.00 200,000

$ 1.75 300,000

lowering the price from $3.00 to $1.75 results in an output effect of _______ and a price effect of _______

Answer: Output effect of = 1.75 * 100 = $175,000

Price effect of = 1.25 * 200000

= -$250,000

Step-by-step explanation:

Output effect: there would be an increase in quantity sold by 100,000 units at $1.75. This gives the out to be sold

Price effect: since Sally reduces the price to $1.75, she would make a lose of $1.25 ($3.00 - $1.75) on the 200,000 units that could have been sold at $3.00