Contact for All Other Solved Assignments of MB0022 to MB0035

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Contact for all other solved assignments of MB0022 to MB0035 set 1 and 2 to firozkhan.gm@gmail.com Name Roll No. G M Firoz Khan 520931217 Managerial Economics [Set 2] MB 0026 Program MBA Subject Code Learning Systems Domain –Indira Nagar, Centre Bangalore [2779] Set 2 MB0026 1. What is pricing policy? What are the internal and external factors of the policy? A detailed study of the market structure gives us information about the way in which prices are determined under different market
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  Set 2 MB0026 Contact for all other solved assignments of MB0022 to MB0035 set 1and 2 to firozkhan.gm@gmail.com   Name G M Firoz KhanRoll No. 520931217Program MBASubjectManagerial Economics[Set 2]Code MB 0026LearningCentreSystems Domain – Indira Nagar,Bangalore [2779]  Set 2 MB0026 1.   What is pricing policy? What are the internal and external factors of the policy? A detailed study of the market structure gives us information about the way inwhich prices are determined under different market conditions. However, inreality, a firm adopts different policies and methods to fix the price of itsproducts. “Pricing Policy refers to the policy of setting the price of the product or products and services by the management after taking intoaccount of various internal and external factors, forces and its ownbusiness objectives” .  Pricing policy basically depends on the price theory that is the corner stone of economic theory. Pricing is considered as one of the basis and central problemsof economic theory in a modern economy. Fixing prices are the most importantaspects of managerial decision making because market price charged by thecompany affects the present and future production plans, pattern of distribution, nature of marketing etc. Above all the sales revenue and the profitration of the producer directly depend on the prices. Hence, a firm has tocharge the most appropriate price, which is neither too high not too low, woulddepend on a number of factors and focuses. There are no standard formulas orequations in economics to fix the best possible price for a product. The dynamicnature of the economy forces a firm to raise and reduce the pricescontinuously. Hence prices fluctuate over a period of time.Generally speaking, in economic theory, we take into account of only twoparties. i.e. Buyers and sellers while fixing the prices. However, in practice,there are many parties associated with pricing of a product. They are rivalcompetitors, potential rivals, middlemen, wholesalers, retailers, commissionagents and above all the government. Hence we should give due considerationto the influence exerted by these parties in the process of price determination.The various factors and forces that affect the price are divided into twocategories. They are as follows: a.   External Factors(Outside factors): i.   Demand, supply and their determinants.ii.   Elasticity of demand and supply.iii.   Degree of competition in the market.iv.   Size of the market.v.   Good will, name, fame and reputation of a firm in the market.vi.   Trends in the market.vii.   Purchasing power of the buyers.viii.   Bargaining power of customers.ix.   Buyer behavior in respect of particular product.x.   Availability of substitutes and compliments.xi.   Government’s policy relating to various kinds of incentives, disincentives, controls and restrictions.xii.   Regulations, licensing, taxation, export and import, foreign aid andforeign capital.  Set 2 MB0026 xiii.   Foreign technology, MNC’s etc.  xiv.   Competitors pricing policy.xv.   Social considerationxvi.   Bargaining power of consumers. b.   Internal Factors(Inside Factors): i.   Objectives of the firm.ii.   Production costs.iii.   Quality of the product and its characteristics.iv.   Scale of production.v.   Efficient management of resources.vi.   Policy towards percentage of profits and dividend distribution.vii.   Advertising and sales promotion policies.viii.   Wage policy and sales turnover policy.ix.   Stage of the product on the product life cycle.x.   Use pattern of the product.xi.   Extent of the distinctiveness of the product.xii.   Extent of the product differentiation practices by the firm.xiii.   Composition of the product and life of the firm.Thus, multiple factors and forces affect the pricing policy of a firm. 2.   Mention three crucial objectives of price policies Firms have multiple objectives today. In spite of several objectives, theultimate aim of every business is to maximise its profits. This is possible whenthe returns exceed costs. In this context, setting an ideal price for a productassumes greater importance. Pricing objectives has to be established by top management to ensure not only that the company’s profitability is adequate butalso that the pricing is complementary to the strategy of organisation. Whileformulating the pricing policy, a firm has to consider various economic, social,political and other factors.The following objectives are to be considered while fixing the prices of theproducts. a.   Profit maximization in the short term: The primary objective of the firm is to maximise its profits. Pricing policy as aninstrument to achieve this objective should be formulated in such a way as tomaximise the sales revenue and profit. Maximum Profit refers to thehighest possible profit .   In the short run, a firm, not only should be able torecover its total costs, but also should get excess revenue over costs. This willbuild the morale of the firm and instil the spirit of confidence in its operations.It may follow skimming price policy, i.e., charging a very high price when theproduct is launched to cater the needs of a few sections of people. It mayexploit wide opportunities in the beginning. But it may provide fatal in the longrun. It may lose its customers and business in the market. Alternatively, it mayadopt penetration pricing policy. i.e., charging a relatively lower price in thelatter stages in the long run so as to attract more customers and capture themarket.  Set 2 MB0026 b.   Profit maximization in the long run: The traditional profit maximisation hypothesis may not prove beneficial in thelong run. With the sole motive of profit maximisation a firm may resort toseveral kinds of unethical practices like charging exorbitant prices, followMonopoly Trade Policy [MTP], Restrictive Trade Practices [RTP], Unfair TradePractices [UTP] etc. This may lead to opposition from the people. In order toovercome these evils, a firm instead of profit maximisation, aims at profitoptimisation. Optimum Profit refers to the most ideal and desirableprofit. Hence, earning the most reasonable or optimum profit has become apart and parcel of a sound pricing policy. c.   Price Stabilization: Price stabilization over a period of time is another objective. The prices as faras possible should not fluctuate too often. Price instability creates uncertainatmosphere in the business circles. Sales plan becomes difficult under suchconditions. Hence, price stability is one of the important prerequisite conditionsfor steady and persistent growth of a firm. A stable price policy only can winthe confidence of customers and may add good will of the concern. It builds upthe reputation and image of the firm. 3.   Mention the bases of price discrimination. Price discrimination refers to the practices of a seller to charge different pricesfor different customers for the same commodity, produced under a singlecontrol without corresponding difference in cost. When a monopoly firms adoptsthis policy, it will become a discriminatory monopoly.The following are the bases of price discrimination: to charge different pricesfor different customers for the same commodity, produced under a singlecontrol without corresponding difference in cost. When a monopoly firms adoptsthis policy, it will become a discriminatory monopoly.The following are the bases of price discrimination:a.   Personnel differences:This is nothing but charging different prices for the same commoditybecause of personnel differences arising out of ignorance and irrationality of consumers, preferences, prejudices and needs.b.   Place:Markets may divide on the basis of entry barriers, for eg. Price of goods willbe high in the place where taxes are imposed and low where there are no orlow taxes.c.   Different uses of the same commodity:When a particular commodity or service is meant for different purposesdifferent rates may be charged depending upon the nature of theconsumption. For example, different rates may be charged for theconsumption of electricity for lightning, heating and production purposes inindustry and agriculture.d.   Time:Special concessions or rebates may be given during festival seasons or
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