Master of Business Administration Essay

Pricing insurance refers to the policy of setting the harm of the harvest-feast or products and services by the management after taking into account of various internal and external factors, forces and its avow furrow fair games. Pricing constitution basically depends on price theory that is the corner stone of scotch theory. Pricing is considered as one of the basic and central problems of economic theory in a neo economy. Fixing prices ar the most crucial aspect of managerial decision making because commercialize price charged by the company affects the present and future occupation plans, pattern of distribution, nature of merchandiseing etc.Generally speaking, in economic theory, we take into account of solitary(prenominal) two parties, i. e. , buyers and sellers while fixing the prices. However, in practice many parties are associated with determine of a product. They are rival competitors, potential rivals, middlemen, wholesalers, retailers, commission agents a nd to a higher(prenominal) place all the Govt. Hence, we should give due consideration to the influence exerted by these parties in the process of price determination. broadly speaking speaking, the various factors and forces that affect the price are divided into two categories.They are as follows I away Factors (Outside factors) 1. Demand, supply and their determinants. 2. Elasticity of demand and supply. 3. Degree of competition in the market. 4. Size of the market. 5. Good will, name, fame and reputation of a starchy in the market. 6. Trends in the market. 7. Purchasing power of the buyers. 8. Bargaining power of customers 9. Buyers behavior in compliancy of position product II. Internal Factors (Inside Factors) 1. Objectives of the firm. 2. Production Costs. 3. Quality of the product and its characteristics. 4. Scale of production. 5.Efficient management of resources. 6. policy towards percentage of benefits and dividend distribution. 7. Advertising and sales promotion policies. 8. Wage policy and sales turn oer policy etc. 9. The stages of the product on the product life cycle. 10. Use pattern of the product. Objectives of the Price Policy A firm has multiple objectives today. In spite of several objectives, the ultimate aim of every business concern is to maximize its profits. This is possible when the returns exceed bells. In this context, setting an ideal price for a product assumes greater importance.Pricing objectives has to be established by top management to ensure not only that the companys profitability is adequate but to a fault that price is complementary to the total schema of the organization. While formulating the pricing policy, a firm has to consider various economic, social, political and new(prenominal) factors. The Following objectives are to be considered while fixing the prices of the product. 1. Profit maximization in the perfectly term The primary objective of the firm is to maximize its profits. Pricing policy as an in strument to achieve this objective should be theorize in much(prenominal) a way as to maximize the sales revenue and profit.Maximum profit refers to the highest possible of profit. In the short expand, a firm not only should be able to obtain its total costs, but also should get excess revenue oer costs. This will build the team spirit of the firm and instill the spirit of confidence in its operations. 2. Profit optimization in the grand run The traditional profit maximization hypothesis whitethorn not prove beneficial in the long run. With the sole motive of profit making a firm may resort to several kinds of wrong practices like charging exorbitant prices, follow Monopoly Trade Practices (MTP), Restrictive Trade Practices (RTP) and Unfair Trade Practices (UTP) etc.This may lead to opposition from the people. In order to over- come these evils, a firm instead of profit maximization, and aims at profit optimization. Optimum profit refers to the most ideal or desirable level o f profit. Hence, earning the most conceivable or optimum profit has ferment a part and parcel of a sound pricing policy of a firm in recent years. 3. Price Stabilization Price stabilization over a period of time is another objective. The prices as far as possible should not move too often. Price instability creates uncertain atmosphere in business circles.Sales plan becomes rough under such circumstances. Hence, price stability is one of the pre requisite conditions for steady and persistent growth of a firm. A stable price policy only tooshie win the confidence of customers and may correspond to the good will of the concern. It builds up the reputation and image of the firm. 4. Facing competitive situation One of the objectives of the pricing policy is to face the competitive situations in the market. In many cases, this policy has been merely influenced by the market share psychology.Wherever companies are aware of specific competitive products, they try to match the prices of their products with those of their rivals to expand the stack of their business. Most of the firms are not merely interested in meeting competition but are keen to prevent it. Hence, a firm is always busy with its counter business strategy. 5. Maintenance of market share Market share refers to the share of a firms sales of a particular product in the total sales of all firms in the market. The economic strength and success of a firm is measured in terms of its market share.In a competitive world, each firm makes a successful attempt to expand its market share. If it is impossible, it has to maintain its existing market share. Any come experience in market share is a symptom of the poor performance of a firm. Hence, the pricing policy has to assist a firm to maintain its market share at any cost. Ques2. Explain the of the essence(predicate) features of long run AC roll. Ans Long run AC warps Long run is specify as a period of time where adjustments to changed conditions are complete. It is actually a period during which the quantities of all factors, inconsistent as well as frozen(p) factors can be adjusted.Hence, there are no fixed costs in the long run. In the short run, a firm has to carry on its production within the existing prove capacity, but in the long run it is not tied up to a particular shew capacity. If demand for the product increases, it can expand output by enlarging its plant capacity. It can construct new buildings or hire them, install new machines, employ administrative and other permanent supply. It can make use of the existing as well as new staff in the most efficient way and there is lot of scope for making indivisible factors to become divisible factors.On the other hand, if demand for the product declines, a firm can cut down its production permanently. The size of the plant can also be reduced and other expenditure can be minimized. Hence, production cost comes down to a greater extent in the long run. As all costs are variable in the long run, the total of these costs is total cost of production. Hence, the distinction between fixed and variables costs in the total cost of production will evaporate in the long run. In the long run only the average total cost is important and considered in taking long term output decisions. Important features of long run AC shorten 1.Tangent bow Different SAC persuades represent different operational capacities of different plants in the short run. LAC curve is locus of all these points of tangency. The SAC curve can never cut a LAC curve though they are tangential to each other. This implies that for any given level of output, no SAC curve can ever be below the LAC curve. Hence, SAC cannot be lower than the LAC in the ling run. Thus, LAC curve is tangential to various SAC curves. 2. Envelope curve It is known as Envelope curve because it envelopes a group of SAC curves appropriate to different levels of output. 3. Flatter Unshaped or dish-shaped curve.The LAC curve is also U shaped or dish shaped cost curve. But It is less pronounced and ofttimes flatter in nature. LAC gradually falls and rises due to economies and diseconomies of scale. 4. grooming curve. The LAC cure is described as the Planning Curve of the firm because it represents the least(prenominal) cost of producing each possible level of output. This helps in producing optimum level of output at the minimum LAC. This is possible when the entrepreneur is granting the optimum scale plant. Optimum scale plant is that size where the minimum point of SAC is tangent to the minimum point of LAC. . Minimum point of LAC curve should be always lower than the minimum point of SAC curve. This is because LAC can never be higher than SAC or SAC can never be lower than LAC. The LAC curve will get through the optimum plant SAC curve at its minimum point. A rational entrepreneur would select the optimum scale plant. Optimum scale plant is that size at which SAC is tangent to LAC, such th at both the curves have the minimum point of tangency. In the diagram, OM2 is regarded as the optimum scale of output, as it has the least per unit cost. At OM2 output LAC = SAC.