ACCA F5 Lecture – Pricing Part 2b
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Can you please help me.. Example 6
P = a- bQ
b = 0.001
a = 120
P = 120 – 0,001Q
Then
120- 0,002 Q = 5, how we find 0,002?
Thak you for youe help.
Using the formula for MR on the formula sheet! 2b = 2 x 0.001 – 0.002
(I do suggest that you watch my free lectures)
Thank you. Sorry, i missed it in the notes.
No problem 馃檪
Thank you for this lecture, it is advisable that I go over it again, in order to imbibe a better understanding of it. Kudos to the lecturer, bravo to ACCA!!!
Thank you very much for your comment (although I am not sure why you write ‘bravo to the ACCA’ , because they do not finance this website 馃檪 )
You are a ‘God sent’. May you live long in sound mind.
The solution to June 2011 second question is different from mine and I don’t understand it.
Instead of ‘MR = 750 – 0.02Q’ I saw ‘MR = 750 – 0.03Q. Where is that 3 coming from?
b = 15/1000 = 0.015
In the marginal revenue formula, 2b = 2 x 0.015 = 0.03
God bless you real good.
You are welcome 馃檪
What’s the definition for complementary products?
Hello, Sir.
i am sorry if this question hae asked beore.
but it is ok if i will differentiate in exam and show it as a workings?
In Section A it doesn’t matter because nobody will look at your workings.
In Section B it is OK because all you will be doing is arriving at the formula for marginal revenue that is given on the formula sheet anyway 馃檪
(and you must show that you know the MR = MC cost rule)
Thank you!
You are welcome 馃檪
Dear Sir,
Could you pls tell me why we calculate T.R & T.C ? As M.R formula will be given in exam and M.C is available in example. Without calculating T.R & T.C we can get the answer. Do we need to show calculation for T.R & T.C for a must or we can skip it ?
Kindly correct me if i am wrong.
Thanks for your valuable time and efforts.
You only need to calculate total revenue and total cost if the question asks for it (which it might).
The reason for showing it in the lecture is to make sense of why the maximum profit occurs when MR = MC. The Paper F5 examiner tests that you understand what is happening – not simply that you know how to use a rule.
Thank you Sir for reply.
You are welcome 馃檪
I realize that example 3 was not explained. …or did i missed out on it?is it because we wont be tested on price elasticity of demand?
It could be tested but there is no lecture. The answer in the lecture notes should explain it enough.
I realized this too, thanks
You are welcome 馃檪
Sorry, where is the answer for this? The lecture notes only show the PED formula, but what is the actual answer for example 3?
Thanks.
Answers to all the examples are in the lecture notes!
Have a look at the contents page and you will see that they are at the end of the notes.
Hi John, to work out the maximum profit on example 6, I did Total Revenue (PxQ) – Total Cost (100000+5Q). I get the same answer, but just wanted to clarify that this is in fact a suitable way to calculate the maximum profit?
Thanks in advance
That’s fine – it does not matter how you calculate it 馃檪
Hello, could you please shortly explain the difference between Product-line pricing and Complementary products?
The lectured example of razors sounds to me more like the pricing of complementary products.
This is an example illustrating my understanding of Product-line pricing: Toyota and Lexus are produced by the same company, but Lexus is more expensive than Toyota as it is supposed to have higher quality (more luxury). So Lexus is priced higher for richer people and Toyota is priced lower for poorer people. And not necessarily the same person will buy both cars (although it is possible) as they are not complementary goods (should not be used together).
What you say is correct except that rather than comparing two different models, better is to compare different models of the same car – one with more features and a higher price, and one with fewer features at a lower price.
Hello Sir,
I am confused in Test 1. Total cost is 26 and the company wants to make GPM of 20% using absorption cost. Why B and not C? It is not clear for me even in the answers.
Thank you very much.
A gross profit margin is the profit as a % of the selling price. For every 100 selling price, the profit will be 20 and therefore the cost will be 80.
If the cost is 26 then the selling price will be 100/80 x 26 = $32.50
GPM’s are always profit as a % of selling price; mark-ups are always profit as a % of cost.
Great explanation and totally clear. Thank you very much!
You are welcome 馃檪
Did we miss price elasticity of demand? Is it not in the course ?
It isn’t lectured, but it is in the lecture notes and should make sense from there.
I am realy thankful to you sir, you make this topic too easy for me to understand
THANKS once again
Thank you 馃檪
Makmuqul, the equation is the derivative (differentiation) of the Total Revenue (TR) formula.
Selling Price P = a – bQ
Total Revenue, TR = PxQ = (a – bQ) x Q
= aQ – bQxQ
If we differentiate TR (ie find dTR/dQ) that last equation, we get a – 2bQ.
That is the marginal revenue. That is, the derivative of TR gives the marginal revenue (MR) or the rate of change of revenue for each unit increase in quantity.
So, P is the selling price.
TR = PxQ
MR = derivative/differentiation of TR = a -2bQ.
Fine (and I go through this in the lecture and so I don’t know why you have repeated it), except that differentiation is explicitly not examinable in any of the ACCA exams.
That is why the formula for the marginal revenue is given in the exam.
Dear Sir
I am confused about MR=120-0.002Q
The formula is given on the formula sheet, once you have calculated a and b for the price demand equation.
is that (50Q)’-(0.01Q^2)’=50-2*0.01Q, so it equals 50-0.02Q .right?
Yes – it is using the formula on the formula sheet.
Once you have the price demand equation and therefore know the values of a and of b, then you put the same values in the marginal revenue formula.
hi sir,
Are the exchange rates of a currency in different countries one of the kind of price discrimination when they are sold by fin.institution with a profit?
No, because it is not the company who determines the exchange rates. Price discrimination is when they deliberately charge different prices, irrespective of the exchange rates.
thank you sir.
You are welcome 馃檪