10.5 Economic Viability

Fixed Costs

Costs that do not change with the output being produced. E.g. rent, salaries, security c

Variable Costs

Costs that vary with output. E.g. raw materials or fuel. 

Total costs

Sum of variable costs and fixed costs.

Break-even point

The number of sales required to to cover the total costs of a product.

Demand pricing

A pricing strategy where the company sets the price based on the demand for the product.

Competitor Pricing

Monitoring competitors prices and offering lower prices to increase demand. 

Product line pricing

The offering of add ons to improve or vary the product. Maximizes profits by increasing sales.

Psychological pricing

Pricing at $1.99 instead of $2.00 to give the allusion of a cheaper price.

Cost-plus pricing

A strategy where a company will add a certain percentage to the total costs for e.g. design, production, distribution, etc. 

Price-minus strategy

The company finds out how much customers are willing to pay, and then works backward to make sure it can profitably produce at that price.

Retail-price

The price at which a product is sold to a consumer in store.

Wholesale price

The price at which a good is sold to a retailer.

Typical manufacturing price

The price to produce a product.

Sales volume 

The number of goods or services sold/provided over a particular period of time.

Unit cost

Total cost/total output = average cost per unit

Return on investment

(Total revenue - total cost) / Total cost x 100

Financial Return

The profit gained from an investment.

Sales volume

The amount of sales at a particular time period.