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June 14, 2016 at 4:29 pm
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!!!
John Moffat says
June 14, 2016 at 5:14 pm
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 🙂 )
June 6, 2016 at 4:53 am
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?
June 6, 2016 at 7:29 am
b = 15/1000 = 0.015
In the marginal revenue formula, 2b = 2 x 0.015 = 0.03
June 7, 2016 at 10:15 am
God bless you real good.
June 7, 2016 at 11:59 am
You are welcome 🙂
May 18, 2016 at 3:51 pm
What’s the definition for complementary products?
April 4, 2016 at 10:18 am
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?
April 4, 2016 at 10:32 am
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 🙂
(and you must show that you know the MR = MC cost rule)
April 4, 2016 at 12:04 pm
April 4, 2016 at 2:16 pm
March 11, 2016 at 4:18 pm
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.
March 12, 2016 at 7:52 am
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.
March 12, 2016 at 8:20 am
Thank you Sir for reply.
March 12, 2016 at 8:26 am
February 29, 2016 at 1:24 am
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?
February 29, 2016 at 7:33 am
It could be tested but there is no lecture. The answer in the lecture notes should explain it enough.
May 18, 2016 at 3:48 pm
I realized this too, thanks
May 18, 2016 at 8:06 pm
June 3, 2016 at 4:07 pm
Sorry, where is the answer for this? The lecture notes only show the PED formula, but what is the actual answer for example 3?
June 3, 2016 at 4:35 pm
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.
February 10, 2016 at 12:09 pm
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
February 10, 2016 at 12:45 pm
That’s fine – it does not matter how you calculate it 🙂
December 10, 2015 at 12:08 pm
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).
December 10, 2015 at 12:13 pm
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.
December 1, 2015 at 1:32 pm
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.
December 1, 2015 at 4:30 pm
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.
December 1, 2015 at 4:40 pm
Great explanation and totally clear. Thank you very much!
December 1, 2015 at 4:44 pm
Mashal Khan says
November 7, 2015 at 6:52 pm
Did we miss price elasticity of demand? Is it not in the course ?
November 8, 2015 at 6:44 am
It isn’t lectured, but it is in the lecture notes and should make sense from there.
November 5, 2015 at 3:35 pm
I am realy thankful to you sir, you make this topic too easy for me to understand
THANKS once again
November 5, 2015 at 10:13 pm
Thank you 🙂
September 13, 2015 at 6:07 pm
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.
September 13, 2015 at 10:29 pm
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.
September 10, 2015 at 5:08 pm
I am confused about MR=120-0.002Q
September 10, 2015 at 5:17 pm
The formula is given on the formula sheet, once you have calculated a and b for the price demand equation.
February 25, 2016 at 3:59 pm
is that (50Q)’-(0.01Q^2)’=50-2*0.01Q, so it equals 50-0.02Q .right?
February 25, 2016 at 7:38 pm
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.
September 10, 2015 at 6:09 am
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?
September 10, 2015 at 8:42 am
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.
September 10, 2015 at 4:08 pm
thank you sir.
September 10, 2015 at 4:28 pm
August 7, 2015 at 2:33 pm
Hello there, Mr. Moffat, I got a question related to the test that is at the end of chapter 7.
Question 1 asks about the selling price of the product, my answer was as follows:
10+8+3+5=26*120%=31.2 which gives the answer C. My answer was based on the assumption that it’s profit margin, since the company wishes to make a gross profit margin of 20%.
But in the answers behind, your solution was based on the assumption as if it’s a mark up which gives the answer B!
Could you please explain how did you reach to that assumption?
August 7, 2015 at 3:32 pm
In future it is better if you ask this sort of question in the Ask the Tutor Forum rather than as a comment on a lecture.
The answer is correct.
A gross profit margin of 20% means that the profit is 20% of the selling price (and therefore the cost is 80% of the selling price).
What you are doing it treating it as though it is a mark-up of 20% which would mean the profit was 20% of cost.
It will help you to watch the Paper F3 lecture on mark-ups and margins.
August 7, 2015 at 6:24 pm
Got it, thanks Mr. Moffat.
August 6, 2015 at 9:15 am
Is understood. Thanks
August 5, 2015 at 8:18 pm
In example 6 where you work out the 1st equation to get P=120 – 0.001Q I dont not understand why, in the next step, to calculate Maximum profit, you then set out the equation as 120 – 0.002 = 5.
Why 0.002 when in the previous equation b = 0.001?
August 6, 2015 at 7:26 am
Because it is the marginal revenue equation. I do explain this in the lecture, and also the formula is given on the formula sheet.
July 15, 2015 at 9:18 pm
i need lecture for price elasticity of demand,,because i enjoy your lecture too much ..i hate BPP text book.
July 15, 2015 at 9:30 pm
I probably will record a lecture – but only when I have the time.
However it is explained well in the lecture notes (and the lectures and the lecture notes go together – using just one or the other is no good)
July 9, 2015 at 2:09 pm
thank you very much sir, am preparing for f5 september 2015 diet and i realy find your lectures helpful. please do i need to still use my bpp exam kit as the kit is too bulky and i go to work everyday or can i just use open tution lecture note and will be sure of passing brilliantly by Gods grace.
July 9, 2015 at 2:40 pm
You must use your Revision Kit because it is vital to practice as many exam standard questions as possible.
The lectures will give you the knowledge you need, but you need the Revision Kit for practice.
July 15, 2015 at 9:13 pm
Dear sir why you not explain price elasticity of demand?
May 31, 2015 at 7:09 pm
love it, thank you for the lectures.
May 31, 2015 at 8:04 pm
I am pleased that you like them 🙂
May 8, 2015 at 6:45 pm
thank you for the lecture, however there is something on example 6 i don’t understand the selling price was not stated either to increase or reduce
May 8, 2015 at 7:02 pm
In pricing questions we always assume that the price/demand relation ship is linear.
Because of that, in this example, if the price goes up by $2 then the demand will fall by 2,000 units, but also, if the price goes down by $2 then the demand will increase by 2,000 units.
April 21, 2015 at 4:18 pm
Sir, is it also that revenue is maximised when marginal revenue = 0?
Thanks in advance.
April 13, 2015 at 4:01 pm
I just noticed on example 6 you did not work out the formulas for total revenues or even total cost…….Does this mean you do not need these to derive at the answer? You can simply work it out from the marginal revenue = marginal cost formula?
Thanks in advance
April 13, 2015 at 4:04 pm
Although you could be asked to calculate total revenue and/or total cost, if you are simply asked to state which selling price will result in maximum profit then all you need to do is use the fact that for the optimum then it is when MR = MC.
April 10, 2015 at 6:19 pm
Very useful ! Thanks a lot
April 4, 2015 at 9:10 pm
Excellent lecture being given.thank you
March 30, 2015 at 12:03 am
Many thanks for these brilliant lectures. I have been studying one per evening and am finding ACCA brilliant (this is my first module) thanks to your website.
A quick question, was example 3 of chapter 7 covering price elasticity of demand omitted from your lecture? I haven’t taken any notes on it. Probably my mistake!
March 30, 2015 at 7:29 am
You are correct – I missed out example 3 🙁
However the free Lecture Notes (and the answer at the back) should make it clear.
March 30, 2015 at 11:35 pm
Thank you, John 🙂
March 20, 2015 at 4:57 pm
Thanx so much for a very elaborate lecture
March 14, 2015 at 9:49 pm
Thanks for the lecture. However, I have an issue. Going with the TR equation of TR = (A-BQ)Q, slotting in the figure of 57500 for quantity as derived, a as 120 and solving , we do not get the correct TR. Why is it so
March 15, 2015 at 9:06 am
If you fill in the figures for Q, a, and b, then the total revenue is 3593750 which is the same as Q x selling price (57500 x $62.50).
Why do you say that this is not the correct total revenue?? (Are you sure you are not confusing it with the total contribution in the answer?)
March 16, 2015 at 11:08 am
Sir, if a= 120, b= 0.01 and q= 57500. When I solve, I don’t still get 3593750.
March 16, 2015 at 11:13 am
Sorry sir, I got it now. Was using 0.01 as b instead of 0.001.
Kerri - Ann says
February 21, 2015 at 7:27 pm
Good Day John,
Must say that i am happy to be back with you again. I was successful in F2 thanks to opentuition.
However, I am very confused with how we get the Marginal Revenue. (I did not do differentiate)
February 21, 2015 at 7:30 pm
As I explain in the lecture, the formula is given on the formula sheet – you do not need to be able to differentiate.
November 24, 2014 at 6:30 pm
Great lecture as always! .
Sir i have a question. How do you see the usefulness of the price-demand equations as regards to the pricing strategies in theory and real life ?.
Cheers : )
November 10, 2014 at 11:59 pm
i notice from the examples 5 and 6 that contribution per unit is the same as “bq” from the equation (p = a – bq)
November 11, 2014 at 8:00 am
Well spotted 🙂
That will always be the case at the levels of P and Q that give maximum profit.
However, don’t use that fact in the exam 🙂
September 12, 2014 at 11:31 pm
September 13, 2014 at 8:27 am
You are welcome – I am please you are finding the lectures useful 🙂
September 11, 2014 at 8:04 pm
very understandable thank sir
May 24, 2014 at 10:54 am
A tonne of thanks , sir!
May 19, 2014 at 5:04 pm
You have provided an understanding to Pricing. My heartfelt thanks.
May 18, 2014 at 1:48 pm
Thank you sir for the great job you’re doing.
Could it be possible that variances in price and demand are not given?
If yes, how should we figure them out?
May 18, 2014 at 3:45 pm
I am not sure exactly what you are asking.
You are usually not given variances – the whole point is for you to calculate the variances!
May 18, 2014 at 4:40 pm
In example5, for instance “a reduction in selling price of $1 will result in additional sales of 100 units”. what should we do in the case where we don’t have this data?
May 18, 2014 at 7:01 pm
Sorry – I completely misunderstood you 🙁
If you are required to produce the price/demand equation, then you have to be given that data in one form or another.
May 6, 2014 at 10:53 pm
Thank you very much. 🙂
May 5, 2014 at 9:46 am
Ex 06, to calculate the profit, which analysis should we use, Key factor analysis or throughput accounting, thank you
May 5, 2014 at 10:40 am
Key factor analysis and throughput accounting are only relevant when there is a limit on the resources available and several products to choose from. None of those factors are relevant here.
Once the demand and associated selling price have been calculated, all the information is available to calculate the profit.
May 5, 2014 at 2:38 pm
(Ex 06, when calculating contribution per annum you deduct variable cost from selling price and then deduct the fixed cost. why do we deduct both variable cost and fixed O/H to calculate the profit. please help sir
May 5, 2014 at 2:43 pm
Profit is revenue less all costs.
Contribution is revenue less variable costs.
Profit is contribution less fixed costs.
Variable costs are those where the total changes with the level of production. Fixed costs are those there the total stays the same for all levels of production.
April 18, 2014 at 2:11 pm
Thank u for the lecture.
March 14, 2014 at 12:55 pm
MR = dTR / dQ ; Here I understood that algebra involved to arrive at the answer. But I am unable to understand the logic behind (MR = dTR / dQ). Please kindly explain.
March 14, 2014 at 2:44 pm
The marginal revenue is the extra revenue that will be generated from selling one extra unit. Because the total revenue is a curve, the marginal revenue will fall with higher demand.
As you will know from our Course Notes and my lecture, you cannot be asked to differentiate in the exams – it is excluded from the syllabuses throughout the ACCA exams.
That is why the equation for the marginal revenue is given on the formula sheet.
October 3, 2013 at 3:27 pm
Your lectures are concise and succinct, and I have benefited immensely. Thank you very much for everything, sir.
October 3, 2013 at 3:58 pm
June 2, 2013 at 7:56 pm
hi , May i know where is the marginal revenue equation is given in question number 6 ?
October 3, 2013 at 3:59 pm
The formula for the marginal revenue (MR) is given on the formula sheet that you get with the exam.
May 17, 2013 at 8:34 am
Kind of having a hard time with the formulas bit of the lecture, but it is not because they are not clearly explained, I guess I just need to practice more.
I am just surprised that as I am already taking a course somewhere else, there was no mention of these formulas on the topic of pricing, they only taught basic things plus the pricing strategies, I wonder if pricing is not that common in the exam and that’s why they didn’t go in deep as it is explained in here?
May 17, 2013 at 8:54 am
Pricing does get asked every three or four exams. I am surprised if you are not being shown the formulae since you are given them in the exam on the formula sheet.
May 17, 2013 at 9:37 am
Oh! so it is actually a common topic. I saw the formula yet there was no great explanation about it, I also came across it obviously in F2. Also there was no talk whatsoever on MC and MR and all of that. I am glad I checked here for this extra bit.
May 17, 2013 at 11:42 am
It is no longer examinable in Paper F2, which makes it slightly more likely at F5 (although it is not so often at F5)
May 17, 2013 at 11:44 am
May I ask when was it removed from the F2 syllabus? Because I took my F2 exam last December so it is not long time back, I wonder if they taught it to me while it was out of the syllabus already!!!!!
May 17, 2013 at 12:45 pm
Also I have another question and I am sorry if I am asking too many questions, but i would like to know if the price elasticity of demand is within the F5 syllabus, will I be expected to calculate the elasticity of products and so? I do have a basic idea about it from F1 and I believe I could answer a writing question on it as long as it is basic question but I am not sure if it is within the syllabus and if I am supposed to be aware of it. I am asking this because I found one question on it within my kit.
Thank you very much and apologies for any disturbance.
May 17, 2013 at 5:30 pm
Yes – it is in the syllabus 🙂
May 17, 2013 at 5:37 pm
I guess I have been studying the things which are not in the syllabus and leaving the topics included in the syllabus !!!
Thank you for all the clarifications!! 😀
April 13, 2013 at 4:24 pm
very in-sighting. God bless you
March 11, 2013 at 6:54 pm
Nice one. Open Tuition Rocks!
February 22, 2013 at 8:10 pm
Brilliant lecture thank you. i however am struggling to find past exam questions to do some more exercises any ideas?
I only found Qs in the dec 2007 q1 .
February 16, 2013 at 12:39 am
can any body help me..is pricing strategies(cost plus price,marginal cost plus price) are also included in this chapter…..in some books its included?
February 16, 2013 at 1:40 pm
Cost plus pricing (full cost + and marginal cost +) is in the syllabus and is (of course) covered in our notes and lectures on here.
(It is more of a policy than a strategy, but that does not really matter.
August 13, 2012 at 7:21 pm
Thank u – brilliant
June 8, 2012 at 5:00 pm
by examles it is so much easier to remember.
May 9, 2012 at 9:52 am
Very clear illustration, thanks very much tutor!
March 28, 2012 at 8:12 pm
I really enjoyed the lecture and the lecturer’s way of explanaing things but still want a detail explanations on Price elasticity of demand. The ones you taught were well understood. Thanks.
March 24, 2012 at 8:00 pm
March 20, 2012 at 4:52 pm
very very good Lecturer.
February 17, 2012 at 9:14 pm
Well explained…. thanks OT
March 5, 2012 at 12:19 pm
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