Price-taking

The core of new product pricing takes into account the price sensitivity of demand and the incremental promotioneil and production costs of the seller. What the product is worth to the buyer, not what it costs the seller, is the controlling consideration. What is important when developing a... 

Price-taking/competitive equilibrium The second model of agent behavior is price-taking, or myopic best-response, and relates to competitive equilibrium theory. In this model the equilibrium state is defined by the condition that an agent plays a best-response to the current price and allocation in the market, without modeling either the strategies of other agents or the effect of its own actions on the future state of the market. 

The modeling assumption of price-taking behavior states that agents will take prices as given and demand items that maximize payoff given their valuations and the current prices. This is commonly described as price-taking or... 

In this section, we tie together the mechanism design approach and the competitive equilibrium approach. The basic idea is to construct efficient ascending-price auctions that terminate with the outcome of the VCG mechanism. With this, price-taking behavior is a game-theoretic equilibrium of the auction despite the effect that an agent s bids might have on future price dynamics. The auctions provide a dynamic method to compute a set of competitive equilibrium prices, from which allocative efficiency follows. 

The NPV approach involves assigning a rate of return (r, in %) that is specific to the project and then computing the present value of the expected stream of revenues (/ ,-, in ). It provides an indication of what the present value of the investment (I) is considering the investment cost while realizing the future revenue from the investment at the present time. The NPV is simply the present value of future cash flows minus the investment price, taking inflation and returns into account. Since the investment is initially expended, it is counted as negative revenue. An NPV formula is expressed as... 

Price Low unit price Take it or leave it No negotiation High unit price Tender and negotiation Standard items from price list... 

Caution is required in the use of the simple cashflow indicators, since they fail to take account of changing general price levels or the cost of capital (discussed in Section 13.4). It is always recommended that the definition of the indicators is quoted for clarity of understanding. 

Some scientific studies indicate that the gam in performance obtained through the use of anabolic steroids is small This may be a case though in which the anecdotal evidence of the athletes may be closer to the mark than the scientific studies The scientific studies are done under ethical conditions in which patients are treated with prescription level doses of steroids A 240 pound offensive tackle ( too small by todays standards) may take several ana bolic steroids at a time at 10-20 times their pre scribed doses in order to weigh the 280 pounds he (or his coach) feels is necessary The price athletes pay for gams in size and strength can be enormous This price includes emotional costs (friendships lost because of heightened aggressiveness) sterility testicular atro phy (the testes cease to function once the body starts to obtain a sufficient supply of testosterone like steroids from outside) and increased risk of prema ture death from liver cancer or heart disease... 

Adipic acid is a very large volume organic chemical. Worldwide production in 1986 reached 1.6 x 10 t (3.5 x 10 lb) (158) and in 1989 was estimated at more than 1.9 x 10 t (Table 7). It is one of the top fifty (159) chemicals produced in the United States in terms of volume, with 1989 production estimated at 745,000 t (160). Growth rate in demand in the United States for the period 1988—1993 is estimated at 2.5% per year based on 1987—1989 (160). Table 7 provides individual capacities for U.S. manufacturers. Western European capacity is essentially equivalent to that in the United States at 800,000 t/yr. Demand is highly cycHc (161), reflecting the automotive and housing markets especially. Prices usually foUow the variabiUty in cmde oil prices. Adipic acid for nylon takes about 60% of U.S. cyclohexane production the remainder goes to caprolactam for nylon-6, export, and miscellaneous uses (162). In 1989 about 88% of U.S. adipic acid production was used in nylon-6,6 (77% fiber and 11% resin), 3% in polyurethanes, 2.5% in plasticizers, 2.7% miscellaneous, and 4.5% exported (160). 

Economic Aspects. Terephthahc acid and dimethyl terephthalate are usually sold under long-term contracts. Pricing information is at times pubhshed but actual contract prices are not revealed. Price data pubhshed in 1992 were 0.60/kg for terephthahc acid and 0.57/kg for dimethyl terephthalate (42). The price is mainly influenced by the price of -xylene. The price of terephthahc acid is more than dimethyl terephthalate because a kilogram of it produces 17% more polyester. The price of dimethyl terephthalate takes this factor plus a credit for the methanol generated during polyester production into consideration. 

Sales of thiophene in the 1990s amount to hundreds of metric tons per year. SuppHes are available worldwide from Synthetic Chemicals Ltd. (SCL) in the United Kingdom and Elf-Atochem SA in France. There is currendy no U.S. producer of thiophene or the principal thiophene derivatives. At these levels of demand, material is shipped in 200-hter dmms and in bulk quantities. Market price is dependent on the level of off-take. 3-Methylthiophene is also available from SCL, but demand is low and even lower in the case of 2-methylthiophene lower production and lower market demand have led to higher prices for these derivatives. 

Exploration. Because it takes years to bring a mine into production, significant new copper deposits are sought and known reserves are expanded more or less continually. These exploration expenditures are highly sensitive to metal market conditions, and, as of this writing, gold is at a better price level than copper. Worldwide exploration continues, however, even after discovery of a deposit and the start of mining. 

Selection of the right elastomer has to take iato account not only the low temperature resistance, the elastic properties, and mechanical properties, but also price, which can vary widely ia specialty elastomers. 

The effect of differential inflation on this project emerges in Fig. 9-35, with all (NPV)s corrected to their purchasing power in Year 0. The top line shows (NPV) for various rates of general inflation. The bottom line shows (NPV) for the differential-inflation case in which only the costs are allowed to increase while product selling price and thus cash income remain constant from year to year. The middle hne shows the effect of general inflation when the price rises are delayed by I year. The figure confirms that both of these situations take away from the attractiveness of the project. 

In Table 9-28, a correct overhead cost of 2.50 per unit at normal capacity is calculated by taking either 31.25 percent of the direct materials cost, 125 percent of the direct labor cost, or 25 percent of the prime cost. AU these methods give a total cost of 12.50 per unit and a profit of 1.50 per unit for a selling price of 14 per unit. 

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