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I begin with a discussion of markup pricing. In 15.010, yousaw how the profit-maximizing price-cost margin is inversely related to the firm’s price elasticity of demand. (If you have forgotten this, go back and reread Chapter 10 of Pindyck & Rubinfeld, Microeconomics.) But how does one obtain an estimate of the firm’s price elasticity of demand?
Chapter 1 • Strategic Pricing 5 To solve the problem of determining unit cost before determining price, cost-based pricers are forced to assume a level of sales volume and then to make the absurd assumption that they can set price without affecting that volume.
Unlike most microeconomics textbooks, which focus exclusively on markets and efficiency, this book starts with the question of human well-being and then examines how economic activities can contribute to, or detract from, well-being.
We will learn in this chapter that short run costs are different from long run costs. We can distinguish between two types of cost: explicit and implicit. Explicit costs are out-of-pocket costs, that is, actual payments.
Chapter 5: Cost-effectiveness analysis Jeremy A. Lauer1, Alec Morton2 3and Melanie Bertram 1 Introduction Cost-effectiveness analysis (CEA) is a form of economic evaluation concerned with efficiency: that is, with achieving the most for the resources ( “value for money”). For
We will see in the following chapters that revenue is a function of the demand for the firm’s products. Total cost is what the firm pays for producing and selling its products. Recall that production involves the firm converting inputs to outputs. Each of those inputs has a cost to the firm.
Chapter 5: Understanding Supply 5-3 Summary: Fill in the missing words. Any change in the costs of inputs, like raw materials, machinery, or labor, will affect supply. A cost increase causes a fall in supply at all prices because the good has become more expensive to produce.
