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Sir there is a question in Kaplan kit, although it is not a past exam question, that explain 3 reasons why it may be inappropriate for a company to use theoretical pricing model in practice? Its for 6 marks.
Sir what will be the 3 reasons which we will write for such a question? And is such a question in our syllabus?
Surely the Kaplan kit has an answer? 🙂
Three of the reasons are:
1. It is virtually impossible in practice to find the price demand relationship
2. We assume the relationship is linear, which is practice it almost certainly will not be.
3. We assume that the marginal/variable cost is a fixed amount per unit – in practice the variable cost is likely to change with different levels of production.
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