Master of Business Administration Essay Example for Free

Master of Business brass section Essayprice policy refers to the policy of setting the price of the crossing or products and services by the management after pickings into account of conglomerate internal and external factors, forces and its own business objectives. set Policy basically depends on price theory that is the corner stone of economic theory. Pricing is considered as one of the basic and central problems of economic theory in a modern economy. Fixing prices ar the virtually important aspect of managerial decision making because marketplace price charged by the company refers the present and future issue plans, pattern of distri furtherion, nature of marketing etc. Generally speaking, in economic theory, we take into account of only two parties, i. e. , buyers and sellers plot of ground fixing the prices. How of all time, in practice many another(prenominal) parties atomic number 18 associated with price of a product. They atomic number 18 rival competito rs, potential rivals, middlemen, wholesalers, retailers, commission agents and above all the Govt. Hence, we should relent due consideration to the influence exerted by these parties in the process of price determination. Broadly speaking, the various factors and forces that affect the price are divided into two categories.They are as follows I External Factors (Outside factors) 1. Demand, supply and their determinants. 2. snatch of demand and supply. 3. Degree of competition in the market. 4. Size of the market. 5. Good impart, name, fame and reputation of a tighten in the market. 6. Trends in the market. 7. Purchasing power of the buyers. 8. Bargaining power of customers 9. Buyers behavior in respect of incident product II. Internal Factors (Inside Factors) 1. Objectives of the crocked. 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 net and dividend distribu tion. 7. Advertising and sales promotion policies. 8. Wage policy and sales turn over policy etc. 9. The stages of the product on the product life cycle. 10. Use pattern of the product. Objectives of the impairment Policy A firm has multiple objectives today. In spite of several objectives, the ultimate aim of every business concern is to increase its clamss. This is possible when the returns exceed be. 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 also that pricing is complementary to the total strategy of the organization. While formulating the pricing policy, a firm has to consider various economic, social, political and other factors. The Following objectives are to be considered while fixing the prices of the product. 1. Profit maximization in the short term The primary objective of the firm is to increase its prof its. Pricing policy as an instrument to achieve this objective should be formulated in such(prenominal)(prenominal) a way as to maximize the sales revenue and profit.Maximum profit refers to the highest possible of profit. In the short excrete, a firm not only should be able to recover its total costs, but also should get excess revenue over costs. This will build the morale of the firm and bestow the spirit of confidence in its operations. 2. Profit optimization in the want run The traditional profit maximization hypothesis may not prove beneficial in the long run. With the sole causative of profit making a firm may resort to several kinds of unethical practices like charging steep prices, follow Monopoly Trade Practices (MTP), Restrictive Trade Practices (RTP) and Unfair Trade Practices (UTP) etc.This may lead to opposer from the people. In order to over- come these evils, a firm instead of profit maximization, and aims at profit optimization. best profit refers to the most ideal or desirable level of profit. Hence, earning the most reasonable or optimal profit has become a part and parcel of a sound pricing policy of a firm in recent years. 3. Price Stabilization Price stabilization over a conclusion of time is another objective. The prices as far as possible should not fluctuate too often. Price instability creates uncertain atmosphere in business circles.Sales plan becomes difficult under such circumstances. Hence, price stability is one of the pre requisite conditions for steady and persistent growth of a firm. A shelter price policy only flush toilet win the confidence of customers and may add 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 reflection 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 competit ive products, they try to match the prices of their products with those of their rivals to expand the volume of their business. Most of the firms are not merely interested in meeting competition but are keen to counter it. Hence, a firm is forever and a day busy with its counter business strategy. 5. Maintenance of market share mart 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 mensurable 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 brisk market share. Any decline 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 important features of long run AC trend. Ans Long run AC curves Long run is defined as a period of time where adjustmen ts to changed conditions are complete. It is actually a period during which the quantities of all factors, variable as head as fixed 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 implant capacity, but in the long run it is not tied up to a particular plant capacity. If demand for the product increases, it can expand output by enlarging its plant capacity. It can redo new buildings or hire them, install new machines, employ administrative and other permanent staff. 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 coat 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. A s all costs are variable in the long run, the total of these costs is total cost of production. Hence, the distinction betwixt fixed and variables costs in the total cost of production will disappear 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 curve 1.Tangent curve Different chemise curves 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 Un mold or dish-shaped curve.The LAC curve is also U shaped or dish shaped cost curve. But It is less pronounced and much flatter in nature. LAC gradually falls and rises due to economies and diseconomies of descale. 4. Planning curve. The LAC cure is described as the Planning Curve of the firm because it represents the least cost of producing each possible level of output. This helps in producing optimum level of output at the stripped-down LAC. This is possible when the entrepreneur is selecting 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 touch 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 that both the curves film 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.