History and Social Science, Part 31

Question 1: Define and discuss profit maximization.

Answer 1: The usual goal of any business concern is the maximization of profits. Sole business owners, partnerships and corporations all face this problem. There are a number of common strategies for increasing profits for these concerns. The most important, for any type of business is to find the amount of production of finished goods at a certain price which guarantees the best return. One approach is to cut costs to a level to produce a optimum profit. This involves determining at what point the minimum input will result in an optimal level of per unit products. This would be a level of profit maximization.Another tactic is to increase sales in an attempt to improve the profit picture. A flaw in this approach is that as units produced increase, variable costs also go up.Profit maximization is determined by a myriad of economic factors, some beyond the control of an individual firm. Variables that can be determined by the firm can position it the to take advantages of favorable economic conditions. Maximizing opportunities in any economic environment is the challenge for an individual company.

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Question 2: Discuss the elements involved in pricing.

Answer 2: Pricing is an essential element in marketing. It is a sophisticated business practice, and one that may cause a products success or failure. The simple definition of pricing is the assignment of monetary amounts to goods and services sold by the company. Complexities of this process include varying prices to different customers, special price promotions, determining the price based on fluctuating variable costs, special quantity pricing, incentive pricing for multiple orders of dissimilar products, and accurately assessing the price the market will bear.Pricing must be based on accurate market research which provides insights to the buying habits of the potential market. Clear objectives for pricing must be set, and knowledge of the competitions pricing policies are critical. Decisions must be made on multiple pricing, pricing for international sales, zone pricing (varying prices in different geographical areas), the use of discounts, and the understanding of the market's price sensitivity. all of the factors (and several others) will determine the price charged for a particular good or service.

Question 3: Describe the process of setting goals in pricing.

Answer 3: Prices are determined to fulfill several purposes, the main one being a sufficient price to insure sales that will attain the financial goals of the firm. The price must also be realistic when compared to the marketplace and competition. It would be an error to price a new candy bar at $1.00 if competing bars of similar size sell for $.75. Price must also fit into a companies overall marketing plan which will include channels of distribution, manufacturing requirements, and storing and shipping facilities.The quality of the product in the market (high-end/low-end), planned promotional and overall marketing strategies, and the effectiveness of the sales force all play a part in pricing. In general prices should reflect the most that customers are willing to pay for it. This will usually result in the most income per unit. The effective price of a product is monies the firm obtains from sales of goods and services after special pricing strategies (promotions, incentives, and discounts) are considered.

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