COMMERCE 2AB3 Chapter Notes - Chapter 9: Transfer Pricing, Market Power, Variable Cost
27 Mar 2017
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Calculate a target cost when the market determines a product"s price. Many factors affect price product price should cover cost and earn a reasonable profit. Must have a good understanding of market forces for appropriate price. A company (price taker) can accept the price as set by the competitive market (supply and demand) Market price when product cannot be easily differentiated from competing products: eg. In a highly competitive market, price is largely determined by supply and demand. Must control costs to earn a profit. Target cost- cost that provides the desired profit on a product when the seller does not have control over the product"s price. Select segments to compete in, for example, luxury goods or economy goods: determine target price: price that company believes would place it in the optimal position for its target audience. Use market research: determine target cost: difference between target price and desired prifit.
