Your source of Free Articles Your source of Free Reprint Articles and Content! Login
  HOME       SUBMIT AN ARTICLE       BENEFITS       TERMS AND CONDITIONS       TOP WRITERS  

Find an Article:   
ArticlesGratuits.com, your source of Free Articles about: Business (General)
 

Pricing to Achieve Target Profits

price, products, profits, profit maximisers, company policies, price management,

The assumption made in simple economics theory is that in a situation of imperfect competition companies will be 'profit maximizers', that is, they will aim to make the highest profit the situation allows. A simple approach to achieving this is to charge 'what the market will bear' — the highest price that customers are prepared to pay (although once again we have the difficulty that in many situations price will affect the quantity sold). In practice, however, most companies seem rather to aim at a satisfactory level of profit — in economics language they are 'satisficers'. What is a satisfactory level of profit?

Clearly it is not enough to aim purely at the greatest amount of total profit, regardless of all other considerations. For example, suppose a business with $10,000 invested in it earns profits of $2,000. Then suppose that profits could be increased by a further $200 per annum but only by using further capital of $10,000. Clearly, this would not be a good use of the additional $10,000 which would earn more in the bank.

We have to look then at maximization of the percentage of profit in relation to the capital used in the business (usually referred to as 'return on capital employed'). There is a slight complication, since capital employed can be calculated in a number of different ways, but only the principle need concern us here.

A company can set as its objective a return of 10 per cent, 20 per cent or whatever on the capital employed in the business. The break-even approach can be used to establish whether a given project is likely to achieve this result and, if not, the project will not be taken up.
Published: 2007-04-30
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

www.martin-hahn.net

Source: ArticlesGratuits.com - Free Articles



Most popular articles from Business (General) category
Buy this article  
Full Rights: 20.00
Free    


Article Categories
Arts and Entertainment Automotive Business   Advertising   Affiliate   Business (General)   Business Ethics   Business Etiquette   Careers   Communication   Customer Service   Economy   Entrepreneurial   Home Based   Jobs/Employment   Management   Marketing   MLM   Money Making Ideas   Networking   Online Business   Public Relations   Real Estate   Sales Communication Computer and Internet Finance Health and Fitness Home and Family Legal News and Society Pets and Animals Recreation and Sports Science Self Improvement Travel

125aa
 

Home | Submit an article | Benefits | Terms and Conditions | Top Writers | Contact-Us| Login

Copyright ArticlesGratuits.com - Free Reprint Articles
www.your-website.ca - www.creation-site-internet.ca