INTERNATIONAL INDIAN SCHOOL, DAMMAM

MARKETING
CLASS -XII (2025-26)
UNIT-2 PRICE DECISION
MEANING OF PRICE
The term price denotes money value of a product. It represents the amount of money that
customers pay to the sellers to gain benefits of having or using a good or service. price indicates
the money value which a buyer is ready to exchange for purchase of certain good or service.

DEFINITION OF PRICE-
According to Philip Kotler- “Price is the amount of money charged for a product or service.”
According to Stanton “Price is the amount of money needed to acquire some combination of
goods and its companying services.”
Pricing is defined as „the process whereby a business sets the price at which it intends to sell
its products and services’.
While setting prices for its products the business takes into account various aspects of
production, listed below.
• Price of raw material-A higher cost of acquiring these implies a higher product-price and
vice versa.
• Cost of manufacturing-If manufacturing cost is higher, the price of product will also be
higher, whereas lower manufacturing cost leads to lower price. This cost includes the wages of
labour, expenses on power and other overhead expenses.
• Market condition- When market has positive sentiment i.e. high demand for goods and
services because of high income and purchasing power of consumers, companies set higher
prices for their products vise versa there is depression or negative sentiment due to lack of
demand in market, price is also kept low by firms.
• Competition in the market- If there is no other firm in the market offering similar product,
the firm may set a higher price for its product or service, but if there are many market players
for the same product, the price will be kept competitive.
• Brand and quality of product- A higher brand-value and better quality corresponds to a
higher product price in the market. Example-Tanishq will price similar ornaments at a much
higher price owing to its brand-value and reputation in the market.
Too high or too low pricing of a product could mean lost sales for the organisation.

OBJECTIVES OF PRICING

Profitability objectives Market-Related Public Relations’

Objectives 1 Objectives
1. Profitability objectives:

• Target Rate of Return on Investment or Net Sales

In this, the price represents cost of production and profit margin. The basic objective is to
build a price structure to provide sufficient return on the investment or capital employed.
• Profit Maximization
Profit maximization is an important objective for any business for its survival although No firm
expressively states this as an objective for fear of public criticism. In recent times though, the
business philosophy has changed. Businessmen have started to think from the perspective of
society instead of only focusing on maximizing profits.
2. Market-Related Objectives:
• Meeting or Preventing Competition in the Market
Some firms adopt pricing policies to meet or prevent competition in the market. They
are ready to fix their prices at a competitive level to meet Maintaining or Improving
Market Share competition in the market. They even follow “below cost pricing”, that
is, charge less than the cost because they believe it will prevent new firms from entering
the market.
• Maintaining or Improving Market Share
Market share is meaningful measure of success of a firm’s marketing strategy. This
price objective helps to maintain the market share, i.e. either to increase or sometimes
to decrease it. This pricing objective is followed by firms operating in expanding
markets. When a market has a potential for growth, market share is a better indicator
of a firm‟s effectiveness than target return on investment.
Target market share means that sale which a company wishes to attain and it is
normally expressed as a % of the total industry sales. Therefore, this is a worthwhile
pricing objective for firms operating in expanding markets.
• Price Stabilization
Price Stabilization as an objective is prevalent in industries that have a price leader.
For example, in an oligopoly, there are only a few sellers which follow one big seller
who acts as the price leader, and try to stabilize their prices simultaneously. No firm is
willing to engage in price wars. They may even forego maximizing profits in times of
prosperity or short supply in order to stabilize prices.
3. Public Relations’ Objectives
• Enhancing Public Image of the Firm
A company’ public image is important to its success. Every company has an identity
representing what it has done to convey the public about its product, packages, trademarks,

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brand names, employees and the marketing programme. This image is deeply influenced
by how the company handles the delicate and sharp weapon of pricing.
A firm known for high quality and high priced products will lose its current customers if it
goes in for low quality and low priced products. However, a company image well
established will favour price policies of its choice because the customers have accepted the
company.
• Resource Mobilization
Resource Mobilizing means the creating resources for either self – development or
reinvestment in the firm. Prices are deliberately set high in certain cases to generate surplus
for reinvestment in the same firm or its sister concerns, e.g. petrol rates are kept very high
as it yields a good surplus (excess of income over spending) because gasoline automobiles
depend fully on petrol.
This objective of price is mostly found in the developed countries where it adds to the
exchequer (former government departmental in charge of national revenue) for
reallocation.

IMPORTANCE OF PRICING

FOR FIRMS TO
CONSUMERS
S
Pricing is an important element of the marketing mix of the firm. Price will usually be set
relatively high by the firm if manufacturing is expensive, distribution and promotion are
exclusive. On the contrary a low price may be a viable substitute for product quality, but
firm requires effective promotion and an energetic selling effort to increase its market share.
Similarly consumers‟ buying decisions also depends upon price of the product up to a great
extent. Highly priced commodities generally witness a sluggish sale trend in comparison to
moderately priced goods.

A. IMPORTANCE OF PRICING FOR FIRM-

1. To determine firm’s Competitive Position and Market share- If prices are too high,
the business is lost. If prices are too low,the firm may be lost. The wrong price can also
negatively affect sales and cash flow to the firm.
2. To achieve the financial goals of the company- Price has an important bearing on the
firm‟s financial goals, i.e. Revenue and Profit. For a given level of production, higher price
means a higher revenue and higher profitability (revenue minus costs).
3. To determine the quantum of production – Price also helps in determining the
quantum of production which should be carried out by the firm. The management of a firm
can make estimates of profit at different levels of production at different prices and can
choose the best combination of production, volume, and price.
4. To determine the product positioning and distribution in the market-The sale of
product is supported by extensive advertising and promotional campaigns. What type of
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promotional techniques is to be used and how much cost will be incurred, these decisions
depend upon prospective revenues of the firm, which again are influenced by the product
price.
5. To determine the quality and variants in production-Before setting the price,
managers try to explore ,Will customers buy the product at that price?‟ to fit the realities
of the marketplace e.g. Samsung offers Samsung Grand for a medium-income group and
Galaxy S7 Edge for a high-income group of consumers.
6. To establish consistency with the other variables in the marketing mix- Pricing
decisions and policies directly influence the nature and quality of product, its packaging,
promotion policies, channels of distribution etc. For instance, a firm may decide to improve
the quality of a product, increase the number of accompanying services and spend more on
promotion and packaging etc. only if it is confident to sell its product at the price which is
good (high) enough to cover the cost of additional improvements and services. If this same
product cannot command a very high price in the market, then the company will have to
keep normal quality, reduce the number of accompanying services, go with different, less-
expensive channels of distribution and simplify packaging etc.
7. Helpful in maintaining system of free enterprise and long run survival of firms- The
firms which are not able to market their products at good prices cannot survive in the long
run as they are not able to pay for various factors of production. So pricing weeds out
inefficient firms and shows way to long run survival.
8. Improvement in company’s image- A firm with an established reputation for quality
at existing price lines may introduce a new product at either higher or lower prices to attract
different market segments.For example -different models of Apple mobiles have good
demand in the market in spite of being high priced.

B.IMPORTANCE OF PRICING TO CONSUMERS-

1.Helpful in decision-making- Goods and services offered by various producers at
different prices help the consumer to make rational and informed buying decisions. For
example, a person may choose to buy a T.V. from one shop which offers the product at Rs
20,000, or from another shop which offers the same T.V. at Rs 21,500 but gives free-repairs
service for five years.
2. Helps in satisfaction of needs: Goods and services offered by different producers at
different prices help the consumer to take that buying-decision which will give him/her
maximum satisfaction.
3. Helps determine the purchasing power and standard of living of the consumer- If a
consumer purchases expensive, luxury items, it implies that he/she has a higher purchasing
power and enjoys good standard of living vise versa if a consumer purchases only low-
priced, essential items, then he/she has a lower purchasing power and standard of living.
4. Enhancement in social welfare– Since each firm tries to outsell others through price
reduction and better quality products in competitive market, consumers are benefitted. In
this way, quality goods are available at competitive price which maximizing social welfare
in society.

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FACTORS AFFECTING PRICING

A. INTERNAL FACTORS– Internal factors are the forces which are within the control of
a firm up to certain extent. The firm can regulate and change these factors as per
requirement. The factors can be discussed as following-
1. Objectives of the firm: Firrms may pursue different objectives such as maximizing
revenue, maximizing profit, maximizing market share or maximizing customer satisfaction.
The Pricing policy should be established only after clear consideration of the firm‟s
objectives.
2. Role of Top Management: Usually, it is the top management that takes a firms pricing
decisions. The role of the marketing manager is to assist the top management in price-
determination and ensure that pricing takes place within the policies laid down by top-
management.
3. Cost of the Product: If the cost of acquiring material and manufacturing cost of the
product are high, the price of the product in the market will also be higher and vice versa.
4. Product Differentiation: The price of a product also depends upon its specifications.
Generally, producers add more and more features to their products to attract customers, and
the customers pay a price for them.
5. Marketing Mix: Price being an important element of the marketing-mix must be
coordinated with the other elements- product, place and promotion.
6. Size of the organization: If the size of firm is big and the scale of production is large, it
can afford to set lower product price and increase its sales. On the other hand small sized
firm keep high price of its products.
7. Location of the organization: The price and product-size will vary depending upon
whether the market is located in a rural or urban area. For example, in the kirana stores in
smaller towns and villages, one will find the Rs 1 or Rs 2 shampoo-sachets instead of a big
200ml or 250ml bottle found in departmental stores in a large city of the same shampoo.
8. Nature of Goods: If product is necessity good, firm may set a moderate price keeping
in view social welfare purpose; but if the product is luxury good in nature and is being
demanded by high end consumers; its price will be high.
9. Promotional programs: The extent of promotional programs and advertisement
expenditure also influence the price of a product. If it is huge, the product will have high
price and vice-versa.

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B. EXTERNAL FACTORS- External factors are forces which are beyond control of the
firm. A firm cannot alter or change these factors or forces for its advantage. These factors
can be discussed as following-
1. Demand: If the demand for a product is inelastic, as in case of necessity goods, a high
price may be fixed. But if the demand for a product is elastic, i.e., changeable in response
to change in price, the firm should not fix higher prices; rather fix lower prices to grab
major market share.
2. Buyers’ behaviour: Buyers behavior also affects the pricing decisions. If they are
habitual of the product the price may be fixed high. Similar pricing decisions are taken by
the firm, if buyers have a particular perception of the product being a symbol of prestige/
status, or utility, e.g. luxury cars.
3. Competition: In a highly-competitive market, a seller’s objective is to give maximum
utility at minimum-possible price. Each firm tries to outsell others offering lesser price and
better quality products in the market. Therefore, prevailing information about what price
the competitors are charging for similar products and what possibilities exist for
increasing/decreasing price also affect pricing.
4. Raw Material or Input suppliers: Pricing decisions take into consideration three
parties- the supplier of raw material, the manufacturer, and the final consumer. If the
supplier charges a high price for inputs, the manufacturer shifts this burden to the consumer
by charging a higher price for the final product. On the other hand, if a manufacturer is
making large profit on a particular product, suppliers will also try to cash in on these profits
by raw material.
5. Prevalent Economic Conditions: During a boom-period in the economy, when market
conditions are favorable firms can afford to fix higher prices of their products. On the other
hand, during slump-period when market conditions are un-favourable firms have to lower
the prices of products to keep the business going and to clear off their old stocks.
6. Government Regulations: If Government policies exert regulatory pressures, promote
anti-price rise sentiment etc, then the companies cannot fix a higher price ,On the other
hand, if government policies are supportive and promote businesses then firms can fix
higher prices.
TYPES OF PRICING

DEMAND ORIENTED
COST ORIENTED PRICING
PRICING

MARKET DRIVEN PRICING VALUE BASED PRICING

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 A. Demand-oriented pricing- When customer demand sets up the price of a product in
the market, it is called Demand oriented pricing. There is an inverse relationship
between the price and quantity demanded of a commodity. Higher is the price of a
product, lower will be its demand and lower is the price of a product, higher will be its
demand in a market.

Some demand based methods of pricing are given below:

1) Perceived value pricing-Perceived value pricing uses buyers‟ perception of value and not
the sellers cost as the key to pricing. The company uses the non-priced variable in the
marketing mix to build up perceived value in the buyers‟ mind. Price is set to match the
perceived value. Different buyers often have different perceptions of the same product on
the basis of its value to them. A cup of tea is priced differently by hotels and restaurants of
different categories be-cause buyers assign different values to the same items.
2) Differential Pricing Different customers have different desires and wants. Intensity of the
demand for the product would also be different.
Following factors affect the differential pricing method.
a. Time of purchase: The Taxi charges vary on the basis of time of the day. There are
night charges and day charges. Hotels charge different amount for different seasons.
b. Location: The similar products can be sold at different prices to the customers in In
different places. One has to travel a lot to get the same product at a lower rate which is
time consuming and may not be economically desirable.
c. Product version: A book can be sold for different prices. By binding the book with
attractive leather cover, the seller can demand a higher price than the ordinary book. The
cost of the product will have a slight variation but the price could have huge variation in
such situations. Slightly different versions of products could be sold on high prices in the
market.
d. The Customer: In a theatre, there are different classes for viewing the same film. But
the film is same for all the customers. Some customers are willing to pay more for a
comfortable seat.

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e. Bargaining ability: Those who have the ability to bargain well can get the product at a
lower cost and others will have to shell out more money for the same product.
f. Level of the knowledge: Level of the knowledge of product features also affect the
price paid by the customer.
g. Availability of a product- When there are many customers for one piece of product, the
seller can demand a high price. The one who is willing/able to pay more will get the
product.
3.Skimming pricing- Skimming involves setting a very high price for a new product
initially and to reduce the price gradually as competitors enter the market. It is remarked,
„launching a new product with high price is an efficient device for breaking up the market
into segments that differ in price elasticity of demand. The initial high price serves to skim
the cream of the market, that is, relatively insensitive to price. In the case of text books,
this method is followed by having a high price for the first edition and lesser prices for
subsequent editions. When an item is clearly different and the right price is not apparent,
this method may be used.
Skimming Pricing Policy is very effective under the following conditions:
1. Where the demand is relatively inelastic, as the customers know little about the product
and close rivals are few.
2. Where the market can be broken down into segments with different price elasticity of
demand.
3. Where little is known about price elasticity of the product.

3) Penetration Price Policy: the penetration pricing, intends to help the product penetrate
into markets to hold a position. This can be done only by adopting a low price in the
initial period or till such time the product is finally accepted by customers. This is an
attempt to set new product price low, relative to the cost. It involves setting low initial
price to establish market share, prompt the competitors and/ or to capitalize production
economies. By setting low initial prices, the competitors are kept away and this makes
possible for the firm to enlarge its share by generating larger sales volume.
The conditions favouring Penetration Pricing policy are:
1. Where there is high price elasticity of demand, i.e., the firm is depending on low prices
to attract more customers to new product.
2. Where large economies are possible, it is because larger sales volume means lower unit.
3. Where there is a strong threat of competition and only a low price can ward off the
potential entrants to the market.
4. Where there is utilized capacity: it is because; the price policy that increases the demand
has no meaning unless the firm is in a position to meet the demand created.
5. Where market segments are not there so that high price may be accepted.

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6. When substitute product is available in the market.
ADVANTAGES OF DEMAND BASED PRICING:
- The pricing based on demand takes into account customer‟s price elasticity and
preferences
-It penalizes inefficiency, optimizes product mix and facilitates new product pricing.
- It also obviates the difficulty of joint cost allocation.
DISADVANTAGES OF DEMAND BASED PRICING:
 The demand based price does not ensure competitive harmony.
 it is not safe from a company’s standpoint.

B. COST-ORIENTED PRICING- A method of setting prices that takes into account the
company's profit objectives and covers its costs of production is called Cost-oriented
pricing.
a. Cost plus Pricing
b. Markup Pricing
c. Break-even Pricing
a.Cost plus Pricing-Cost plus pricing is a cost-based method for setting the prices of goods
and services. The formula for its calculation is-
Selling Price = Unit total cost + Desired unit profit
Cost plus pricing is advantageous as it tells firm what prices competitors are
charging in the market, but it ignores replacement costs issue.
b. Markup Pricing- Markup is the difference between the cost of a good or service and its
selling price. This pricing policy is generally adopted by the resellers who obtain the
product from producers or wholesellers use a percentage increase on the top of product cost
to arrive at an initial price. Retailers apply a set percentage for each product category
according to their marketing objectives. This method helps firms fight the inflation effects
throughout periods of increasing cost.
c. Break-even Pricing- Break even pricing is the practice of setting a price point at which
a business will earn zero profits on a sale.The cost of production is composed of fixed cost
of production and variable cost of production. Fixed cost arises on fixed factors of
production, which do not change during short run. Variable cost of production arises on
variable factors of production, and increase with increased volume of production.
The formula for its calculation is-
BEP = Total Fixed Cost / Selling Price per unit – Variable cost per unit
The equilibrium establishes at a point where total revenue is equal to total cost and
the firm enters into Break-even is a situation of ‘no profit, no loss’.

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If Fixed expenses in a production unit are Rs. 54,000, variable cost per unit is Rs. 15
and selling price per unit is Rs.20; find out BEP quantity. What should be the selling
price if Break-even output is brought down to 6,000 units?
Ans. BEP = Total Fixed Cost / Selling Price per unit – Variable cost per unit
OR
BEP = Total Fixed Cost/ Contribution per unit (Contribution per unit = Selling Price per
unit – Variable cost per unit)
= 54,000/ 20 – 15
= 10,800 units
What should be the selling price if Break-even output is brought down to 6,000 units?
BEP = Total Fixed Cost/ Contribution per unit
(Contribution per unit = Selling Price per unit – Variable cost per unit)
6,000 = 54,000 / Contribution per unit
Contribution per unit = 54,000 / 6000 = 9
Contribution per unit = Selling Price per unit – Variable cost per unit
9 = Selling Price per unit – 15
Selling Price per unit = 9+15=24
Selling Price per unit = Rs. 24
Some common methods of Competition-oriented pricing or market driven pricing
are:
a) Going rate pricing-Fixing the price as per the market trend is known as going rate
pricing. This method practiced in such products which are easily available in the market
and have no variants. This is a popular method of pricing the product among the
retailers. This is an easy method as there is no need to estimate the price elasticity,
demand or various product costs.
b) Sealed Bid pricing- The firm fixes its prices on how the competitors price their
products. It means that if the firm is to win a contract or a job, it should quote less than
the competitors. With all this, the firm cannot set its price below a certain level. That
is, it cannot price below the cost. On the other hand, a higher price above its costs may
reduce the chances of winning the deal.
c) Discriminatory Pricing -It implies that a firm sells the same product / service at two
or more prices that do not reflect a proportional difference in costs. Price discrimination
occurs in many forms:
i) Discrimination on the basis of customer segment – the product / service is sold at
different prices to different customer groups, e.g. Indian Railway charges lower fare for
students.

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 ii) Discrimination on the basis of product form – different version of the same product
are sold at different places. Based on image differences, e.g. a company may sell two
varieties of a bathing soap Rs.2 and Rs 50 respectively, through the difference in their cost
of Rs 10 only.
iii) Locational discrimination – the product is sold at different prices at two places even
though the cost is the same at both the places, e.g. a cinema theatre charges different prices
for seats close to the screen and higher for the seats located far off ie different for ground
floor and balcony seats.
iv) Time discrimination – Prices differ according to the season or time of the day. Public
utilities like taxi charge higher rate at night. Similarly, 5 star hotels charge a lower price for
their rooms during off-season.
v) Image discrimination – the same product is priced at different levels on the basis of
difference in image, e.g. a perfume company may price its perfume @ 500 Rs each in an
ordinary bottle and @ 1000Rs in a fancy bottle with a different name and image.
D. Value- based pricing- Value-based price is a pricing strategy which sets prices primarily,
according to the perceived or estimated value of a product or service to customer rather than
according to
the cost of the product. In this type of pricing price of a product is determined on
customers‟ perception of value rather than the seller’s cost. Pricing begins with analysis
of consumers‟ needs and value perceptions and then company sets its target price and
designs the product.

Major Pricing Methods:

1. Competitive Pricing
2. Penetration Pricing
3. One Price versus Variable Pricing
4. Market Skimming Pricing
5. Discrimination or Dual Pricing
6. Premium Pricing
7. Leader Pricing
8. Psychological Pricing
9. Price Lining
10. Resale Price Maintenance
11. Everyday low pricing
12. Team pricing
1. Competitive Pricing -In this, the management of a firm fixes the price at the competitive
level in certain situations. For example, when Coca-Cola introduced the 200ml beverage
bottles for Rs. 8 only, rival Pepsi followed suit to tackle the competition.
2. Penetration Pricing- Under this pricing method, the company’s objective is to penetrate
the market; capture a large market share and develop popularity of the brand. For this
purpose, prices are fixed below the competitive level.
3. One Price versus Variable Price Policy-The seller charges the same price to similar
types of customers who purchase similar quantities of the product under the same terms of
sale. The price may vary according to the quantity of purchase. For example, a seller may

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charge Rs. 10 per unit if less than one dozen units are purchased, and at Rs. 9 per unit if
more than one dozen units are purchased.
In case of variable-price policy, the seller sells similar quantities to similar buyers at
different prices. For example, a seller may sell the same product at a lower price to old or
loyal customers.
4. Market Skimming Pricing- Under this pricing method, a seller may charge higher
prices during the initial stages of the product life- that is, during the introduction of the new
product in market. This is done to recover the initial investment on the product quickly and
reap higher profits during the introduction stage.
5. Discrimination or Dual Pricing- Under this pricing method, a firm will charge different
prices from different customers according to their ability to pay. This policy is popular with
service-enterprises like legal and medical services, CAs, etc.
6. Premium or Prestige Pricing -A company that sells a premium product, i.e a product
of supreme quality and unique features and technology will employ premium distribution
channels and promotional strategies. To justify these, the pricing of such a product is also
premium e.g. consumers are ready to pay high price for VanHuesen shirts in comparison of
local brands.
7. Leader Pricing- Under this method of pricing, the prices of one or a few items may be
cut temporarily to attract customers. Such products are called “loss leaders”. Loss-leader
products are mostly popular, highly advertised and purchased products. Customers will
come to the store to buy the advertised loss-leader product and then stay to buy other
regular-priced products of the same company, leading to increased volume of sales.
8. Psychological Pricing -Under this pricing method, the prices of products are set in such
a way that has a psychological influence on the buyers. Odd Pricing is also a form of
psychological pricing, whereby prices are set at odd numbers such as Rs. 99, Rs. 149, Rs.
990 which makes the customers falsely believe that they’re paying a lesser price.
9. Price Lining - In this, a retailer usually offers a good, better and best assortment of
products at different price levels. For example, a retailer of readymade shirts may sell them
at three prices: Rs. 90 for the economy choice, Rs. 150 for the medium quality and Rs. 500
for highest quality.
10. Resale Price Maintenance- Under this policy, the manufacturer sets the price below
which his/her manufactured product will not be sold to the distributors or consumers.
He/she may enter into a formal agreement with the distributors of product to not sell below
this fixed price in any situation.
11. Everyday low pricing -In this type of pricing sellers determine price of the product
according to everyday demand and supply. Followed generally in case of perishable goods
, early and late hour of market, for eg. in vegetable market prices of vegetables are different
every day.
12. Team pricing -In this type of pricing companies sell a package or set of goods or
services for a lower price than they would charge if the customer buys all of them

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 separately. This is also called product bundling. Common examples of such pricing are
value meals at restaurants and holiday trips.

OBJECTIVE TYPE/MULTIPLE CHOICE QUESTIONS

A) Identify the pricing strategy which sets prices primarily, according to the perceived or
estimated value of a product or service to customer.
a) Cost based pricing b) Value based pricing
c) Break even pricing d) Demand based pricing
ans. b) Value based pricing
B) Under this pricing method, a seller may charge higher prices during the initial stages of
the product life to recover the initial investment on the product.
a) Leader Pricing b) Psychological Pricing c) Real Price d) Market Skimming Pricing
ans. d) Market Skimming Pricing

C) According to ______ “Price is the amount of money needed to acquire some

combination of goods and its companying services.”
a) Philip Kotler b) Koen Hendrik c) William j. Stanton d) Jonah Berger
ans. c) William j. Stanton

D) If manufacturing cost is higher, the price of product will also be _____.

a) Lower b)Moderate c) Competitive d) Higher
Ans. d) Higher

E) The firms which are not able to market their products at good prices cannot ____ in the
long run as they are not able to pay for various factors of production.
Ans. Survive

F) If the size of firm is big and the scale of production is large, it can afford to set
a)High Product Price b) Lower Product Price c) Moderate Product Price
Ans. Lower Product Price

G) What do you mean by every day low pricing?

Ans. Meaning of every day low pricing along with example

H) Which one among the following statement is not the advantage of demand
based pricing?
a) The pricing based on demand takes into account customer‟s price elasticity andpreferences
b) It penalizes inefficiency, optimizes product mix and facilitates new product pricing.
c) The demand based price does not ensure competitive harmony.
d) It also obviates the difficulty of joint cost allocation.
Ans. c) The demand based price does not ensure competitive harmony.

I) If Fixed expenses in a production unit are Rs. 94,000, variable cost per unit is Rs. 15
and selling price per unit is Rs.20; find out BEP quantity.
a)16800 b)15800 c)18800 d)12800
Ans. c)18800

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 J) Fixing the price as per the market trend is known as
a) Going rate pricing b) Sealed Bid pricing c) Discriminatory Pricing d) Value- based
pricing
Ans. a)Going rate pricing
CASE STUDY BASED QUESTIONS
1. Identify the forces which are under the control of the firm and the firm can alter or
change these factors or forces for its advantage. Explain the factors affecting price of a
product?
Ans. Internal factors ,refer its factors
2. Identify the pricing method in which a firm sells the same product / service at two or
more prices that do not reflect a proportional difference in costs. Explain any three
forms
Ans. Discriminating prices,refer forms of price discrimination
3. ‘Different customers have different desires and wants. Intensity of the demand for the
product would also be different’ .Keeping in view the above statement ,explain the factors
that affect differential pricing .
ans. refer factors affecting the differential pricing method.
4.The penetration pricing, intends to help the product penetrate into markets to hold a
position. This can be done only by adopting a low price in the initial period or till such time
the product is finally accepted by customers. This is an attempt to set new product price
low, relative to the cost. Explain the conditions favoring penetration pricing
Ans. Refer to conditions favouring Penetration Pricing policy
4. ‘Economic conditions and Government regulations play a vital role in determination of product
price’ comment.
ANS refer prevelant economic conditions and government regulations under external factors

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