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PM Chapter 7 Questions Pricing

 

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  3. Sir,
    Isn’t a penetration strategy used for relatively new products in an already established market? Isn’t it a long term approach rather than a short term (2 weeks). I read it in another subject of mine that penetration pricing is used when the market is old but the product is new. Please clear my confusion. Because there are 2 major strategies for new products ( price skimming and market penetration), price skimming is a short term strategy to sell products at the higher price initially so as to take advantage of lack of competitors and new technology and recover the cost of production and profit as soon as possible. And market penetration is a long term strategy to sell below the present market price to get accepted by the consumers. Where did I understand wrong?

    • The question you are talking about is question 4.
      It totally depends on the company on how long they want to use the strategy according to market response and various factors.
      But as in question 4 it is clearly given that it is given a promotional discount in hopes of increasing price in 2 weeks.
      Hope i am able to clear your doubt.
      Thank you

  4. hey john just had one doubt, it is explained that in market penetration initially “prices” are kept very low so as to promote the product, here in the question 4 it is said “heavy discounts” are offered, but there is huge difference between keeping price low and giving high discounts. That question gives me slight confusion regarding this terms. please helps me with same.

  8. Thanks for these questions. They’re very helpful. Though I missed question 1 but I have learnt my mistake. Margin is the profit expressed as a % of selling price and mark-up is the profit expressed as a % of cost. Practice makes perfect when you attempt something for the first time without looking at the comments or answers of others.

  9. Hi Sir,

    Thank you very much. We really appreciate your efforts in the excellent explanation of each chapter and problem solving and your responses to queries. We are highly obliged to you and Open Tuition for bringing this platform to all aspiring ACCA students.

  11. In the determination of selling price(Qn.#1): Margin is related with selling price whereas Mark-up is related with cost.i.e when margin is given, the base for calculation is selling price and for mark-up the base will be cost figure. Am I true?

    • It is explained in full in my free lectures on pricing (along with all other other pricing strategies you are expected to be aware of).
      There is no point in attempting the tests unless you have already watched the lectures.
      (The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.)

  15. Hi Mr John

    I know in advance that I will have to watch the video but the only bit I do not understand is where 8 coming from

    1- DY/DX = 30/10000=0.003
    2- (0.003*100000)+200=500
    3-Price demand equation = P-0.003*X =500-0.003X
    4- differentiation = 500-0.006x
    5- Maximising profit = MR=MC
    6- so 500 – 0.006Q = 8 ? Please how?
    7- Q Units =82000
    8- Price demand of units will be; 500-(82000*0.003)=254

    The only thing I am not clear is where 8 comes from, really appreciate

  17. hi Mr. Moffat, please how is it that in qtn 2, the b is not arrived at this way?…

    P = a – bQ
    25 = a – 20,000b ….. (i)
    30 = a – 18,000b ……(ii)

    (i) – (ii)
    -5 = 0 – (20,000b – (-18,000b)
    -5 = -20,000b + 18,000b
    -5 = -2,000b

    -5/2,000 = b

    thus b = -0.0025

  19. Hi Sir,

    I did that question. Thank you for the explanation.

    I was on about the question where it says materials is $10, labour is $8, variable is $3 and fixed costs is $5.

    How to work out the seling price?

    • I assume that you have watched the free lecture for Chapter 7 before attempting this test?

      For the price demand equation, b = 30/10000 = 0.003
      a = 200 + (100,000 x 0.003) = 500

      So P = 500 – 0.003Q

      So the marginal revenue = MR = 500 – 0.006Q

      For maximum profit MR = MC

      so 500 – 0.006Q = 8

      so Q = 492/0.006 = 82,000

      Therefore, in the price demand equation, P = 500 – (82,000 x 0.003) = $254 per unit

      • If you look at the formula on the formula sheet for the marginal revenue, you will see that it has 2b in it!

        (I do suggest that you watch our free lectures before you try the practice tests – our lectures are a complete course for Paper F5 and I actually work through this example in the lecture on pricing!!!)

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