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Readings and Homework Due for class next Monday, 11/22/04 Read Ch. 10 Homework: 6-22, 6-23, 6-33, 6-34, 6-35, 6-39 (use 15% return for part b) Ch 6 Pricing and Product Planning Price Taker Match prices in industry High volume Standard mature product Price Setter Large market shares – price leaders Differentiated product Types of Decisions Product Mix Constrained Capacity Criterion: CM per unit of constrained resource Types of Decisions Product Mix Over-capacity Include opportunity cost of drop product as incremental cost Criterion: minimize opportunity cost Sacrifice product with the lowest CM per unit of constrained resource Types of Decisions Special Order Under capacity Criterion: CM per unit Over capacity Evaluate capacity increasing options (overtime?) Consider sacrificing product Types of Decisions Pricing If idle capacity Minimal price = relevant costs (will result in no change in income) If over capacity Minimal price = relevant costs including costs to increase capacity or opportunity cost of sacrificed product Types of Decisions Pricing Cost-plus pricing (or full-cost pricing) Price to cover VC, FC, and markup Penetration Pricing: choose low markup for new product to penetrate and capture market share Skimming Pricing: choose high price for new product – cost of privilege to possess newest & greatest