1

Can you think of a situation in which a firm would deliberately charge a price below cost? Why would firms do this?

2

What are the key factors to consider in setting prices? If you were a hairdresser, what price would you charge for a haircut and why?

3

Following on from the lecture example (Mars), now assume the cost base is variable cost - what is the mark-up and the resulting price

4

Describe the skimming price and penetration pricing approaches to pricing new products. Provide example of each.

In-Class Activity 5 Hammill Ltd manufactures 2 types of sailing boats, Yachts and Skiffs. Data for each (per unit) is given below: Yachts Skiffs Sales Price $50,000 $60,000 Direct Material Cost $4,000 $7,000 Direct Labour Cost $14,000 $21,000 Variable O/H Cost $10,000 $9,000 Other Variable Cost $12,000 $10,000 Labour Hours required per unit 145 200 Maximum Demand 90 50 Assuming there are only 20,000 labour hours available (due to shortages of skilled boat-building labour), how many of each type of boat should Hammill produce?In-Class Activity 7 Elaine wants to open a small shop and has the money to rent a small space in which she is considering selling either an umbrellas, ice creams or a mixture of the two (both) The profits from each over the next year will depend on the weather, for which 2 possible states are considered - Sunny or Rainy. Profits Type of shop $OOO's Ice Cream Umbrellas Both Weather Sunny 60 20 45 State Rainy -15 40 15 Required: Determine which option Elaine will choose under the Maximax, Maximin and Minimax Regret assumptions