Chapter 17 Review and Apps

2.1

Profit oriented: an example would be a company introducing a new product that they are wanting to not only break even but make a profit on. When the X-box or Playstation 2 and 3's first came out they were priced high not only to make a profit but to show their newness and their quality.

Sales oriented: a company that wants to make money in the case that they are unsure of their future or strapped for cash will sell as much as they can or to sell off excess inventory. Excess inventory is sold after holidays at places like Target or Wal Mart to boost sales and get rid of extra.

Status Quo: a company in the mature state of their product life cycle would want to keep their price in check with that of competitors. Examples would be products like deodorant, many of those are similarly priced.

3.1
Explain the role of supply and demand in determining price.

There is an inverse relationship with demand and price if the price is low the demand is high if the price is high the demand is lower. In the case of prestige products they may be directly correlated that when price goes up demand also goes up.

3.2
If a firm can increase its total revenue by raising its price, shouldn't it do so?

Of course firms want to make the greatest amount of revenue but by raising prices they may alienate their target market and drive away customers they once had until they raised their prices too high.

3.3
Explain the concepts of elastic and inelastic demand. Why should managers understand these concepts?

Elastic demand means that as price flutuates so does the demand for the product. Managers must know this so that they take this into consideration when adjusting prices on products. Will increasing the price significantly drop the demand? If the product is inelastic then the change is price will have little to no effect on the demand for the product. Managers need to realize if their product is elastic or inelastic.