profit maximization

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# Introduction: In economics , profit maximization is the process by which a firm determines the price and output level that returns the greatest profit . There are several approaches to this problem. The total revenue–total cost method relies on the fact that profit equals revenue minus cost, and the marginal revenue marginal cost method is based on the fact that total profit in perfectly market reaches its maximum point where marginal revenue equals marginal cost. Any costs incurred by a firm may be classed into two groups: fixed costs and variable costs. Fixed costs are incurred by the business at any level of output, including zero output. These may include equipment maintenance, rent, wages, and general upkeep. Variable costs change with the level of output, increasing as more products is generated. Materials consumed during production often have the largest impact on this category. Fixed cost and variable cost, combined, equal total cost. Revenue is the amount of money that a company receives from its normal business activities, usually from the sale of goods and services. Marginal cost and revenue, depending on whether the calculus approach is taken or not, are defined as either the change in cost or revenue as each additional unit is produced, or the derivative of cost or revenue with respect to quantity

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Page 1: Profit Maximization

# Introduction:

In economics, profit maximization is the process by which a firm determines

the price and output level that returns the greatest profit. There are several approaches to this

problem. The total revenue–total cost method relies on the fact that profit equals revenue minus

cost, and the marginal revenue–marginal cost method is based on the fact that total profit in

perfectly market reaches its maximum point where marginal revenue equals marginal cost.

Any costs incurred by a firm may be classed into two groups: fixed costs and variable costs.

Fixed costs are incurred by the business at any level of output, including zero output. These may

include equipment maintenance, rent, wages, and general upkeep. Variable costs change with the

level of output, increasing as more products is generated. Materials consumed during production

often have the largest impact on this category. Fixed cost and variable cost, combined, equal total

cost.

Revenue is the amount of money that a company receives from its normal business activities,

usually from the sale of goods and services.

Marginal cost and revenue, depending on whether the calculus approach is taken or not, are

defined as either the change in cost or revenue as each additional unit is produced, or the

derivative of cost or revenue with respect to quantity output. It may also be defined as the

addition to total cost or revenue as output increase by a single unit.

A firm maximizes profit by operating where marginal revenue equal marginal costs. A change in

fixed costs has no effect on the profit maximizing output or price. The firm merely treats short

term fixed costs as sunk costs and continues to operate as before. This can be confirmed

graphically. Using the diagram illustrating the total cost total revenue method the firm

maximizes profits at the point where the slope of the total cost line and total revenue line are

equal. A change in total cost would cause the total cost curve to shift up by the amount of the

change. There would be no effect on the total revenue curve or the shape of the total cost curve.

Consequently, the profit maximizing point would remain the same. This point can also be

illustrated using the diagram for the marginal revenue marginal cost method. A change in fixed

cost would have no effect on the position or shape of these curves.

Page 2: Profit Maximization

The general rule is that firm maximizes profit by producing that quantity of output where

marginal revenue equals marginal costs. The profit maximization issue can also be approached

from the input side. That is, what is the profit maximizing usage of the variable input.  To

maximize profits the firm should increase usage "up to the point where the input's marginal

revenue product equals its marginal costs". So mathematically the profit maximizing rule is

MRPL = MCL. The marginal revenue product is the change in total revenue per unit change in the

variable input assumes labor. That is MRPL = ∆TR/∆L. MRPL is the product of marginal revenue

and the marginal product of labor or MRPL = MR x MPL.

A smartphone is a high-end mobile phone built on a mobile computing platform, with more

advanced computing ability and connectivity than a contemporary feature phone.[1][2][3] The first

smartphones were devices that mainly combined the functions of a personal digital

assistant (PDA) and a mobile phone or camera phone. Today's models also serve to combine the

functions of portable media players, low-end compact digital cameras, pocket video cameras,

and GPS navigation units. Modern smartphones typically also include high-

resolution touchscreens, web browsersthat can access and properly display standard web pages

rather than just mobile-optimized sites, and high-speed data access via Wi-Fi and mobile

broadband.

The iPhone retroactively labeled the original iPhone, iPhone 2G, or iPhone EDGE was

the first generation of iPhone designed and marketed by Apple Inc. and was succeeded by

the iPhone 3G. It was announced on January 9, 2007 after months of rumors and speculation. It

was introduced in the United States on June 29, 2007. It featured quad-

band GSM with GPRS and EDGE. The original iPhone's design was centered on a 3.5 inches

(89 mm) glass multi-touch touchscreen display. The original iPhone introduced five physical

buttons that have remained consistent over newer generations of iPhone. The device featured

a chrome plated metal frame. The back of which was made of brushed aluminum with a black

plastic base, required because metal shields cellular and Wi-Fi signals. The camera was located

in the upper-left corner of the iPhone's rear. The headphone socket was recessed into the casing,

making it incompatible with most headsets without the use of an adapter. Other models do not

have this issue.

To profit maximization of IPHONE, we take some step for that. Here explain all of that:

Page 3: Profit Maximization

# How much to produce:

Product produce is depend on development of this product In business and engineering, new

product development (NPD) is the term used to describe the complete process of bringing a

new product to market. A product is a set of benefits offered for exchange and can be tangible

(that is, something physical you can touch) or intangible (like a service, experience, or belief).

There are two parallel paths involved in the NPD process: one involves the idea

generation, product design and detail engineering; the other involves market research

and marketing analysis. Companies typically see new product development as the first stage in

generating and commercializing new products within the overall strategic process of product life

cycle management used to maintain or grow their market share.

The process of IPHONE product produce generate as:

1. Idea Generation is often called the "fuzzy front end" of the NPD process

Ideas for new products can be obtained from basic research using a SWOT

analysis (Strengths, Weaknesses, Opportunities & Threats), Market and consumer

trends, company's R&D department, competitors, focus groups, employees,

salespeople, corporate spies, trade shows, or Ethnographic discovery methods

(searching for user patterns and habits) may also be used to get an insight into new

product lines or product features.

Lots of ideas are being generated about the new product. Out of these ideas many

ideas are being implemented. The ideas use to generate in many forms and their

generating places are also various. Many reasons are responsible for generation of an

idea.

Idea Generation or Brainstorming of new product, service, or store concepts - idea

generation techniques can begin when you have done your OPPORTUNITY

ANALYSIS to support your ideas in the Idea Screening Phase (shown in the next

development step).

2. Idea Screening

The object is to eliminate unsound concepts prior to devoting resources to them.

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The screeners should ask several questions:

Will the customer in the target market benefit from the product?

What is the size and growth forecasts of the market segment/target

market?

What is the current or expected competitive pressure for the product idea?

What are the industry sales and market trends the product idea is based

on?

Is it technically feasible to manufacture the product?

Will the product be profitable when manufactured and delivered to the

customer at the target price?

3. Concept Development and Testing

Develop the marketing and engineering details

Investigate intellectual property issues and search patent data bases

Who is the target market and who is the decision maker in the purchasing

process?

What product features must the product incorporate?

What benefits will the product provide?

How will consumers react to the product?

How will the product be produced most cost effectively?

Prove feasibility through virtual computer aided rendering, and rapid

prototyping

What will it cost to produce it?

Page 5: Profit Maximization

Testing the Concept by asking a sample of prospective customers what they think

of the idea. Usually via Choice Modelling.

4. Business Analysis

Estimate likely selling price based upon competition and customer feedback

Estimate sales volume based upon size of market and such tools as the Fourt-

Woodlock equation

Estimate profitability and break-even point

5. Beta Testing and Market Testing

Produce a physical prototype or mock-up

Test the product (and its packaging) in typical usage situations

Conduct focus group customer interviews or introduce at trade show

Make adjustments where necessary

Produce an initial run of the product and sell it in a test market area to determine

customer acceptance

6. Technical Implementation

New program initiation

Finalize Quality management system

Resource  estimation

Requirement publication

Publish technical communications such as data sheets

Engineering operations planning

Department scheduling

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Supplier collaboration

Logistics plan

Resource plan publication

Program review and monitoring

Contingencies - what-if planning

7. Commercialization (often considered post-NPD)

Launch the product

Produce and place advertisements and other promotions

Fill the distribution pipeline with product

Critical path analysis is most useful at this stage

8. New Product Pricing

Impact of new product on the entire product portfolio

Value Analysis (internal & external)

Competition and alternative competitive technologies

Differing value segments (price, value, and need)

Product Costs (fixed & variable)

Forecast of unit volumes, revenue, and profit

# What input to be used and in what quantity:

Supply and demand is an economic model of price determination in a market. It concludes that in

a competitive market, the unit price for a particular good will vary until it settles at a point where

the quantity demanded by consumers (at current price) will equal the quantity supplied by

producers (at current price), resulting in an economic equilibrium of price and quantity.

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The four basic laws of supply and demand are:

1. If demand increases and supply remains unchanged, then it leads to higher equilibrium

price and quantity.

2. If demand decreases and supply remains unchanged, then it leads to lower equilibrium

price and quantity.

3. If supply increases and demand remains unchanged, then it leads to lower equilibrium

price and higher quantity.

4. If supply decreases and demand remains unchanged, then it leads to higher price and

lower quantity.

The inputs or resources used in the production process are called factors of production by

economists. The myriad of possible inputs are usually grouped into five categories. These factors

are:

Raw materials

Machinery

Labor services

Capital goods

Land

In the “long run”, all of these factors of production can be adjusted by management. The “short

run”, however, is defined as a period in which at least one of the factors of production is fixed.

A fixed factor of production is one whose quantity cannot readily be changed. Examples include

major pieces of equipment, suitable factory space, and key managerial personnel.

A variable factor of production is one whose usage rate can be changed easily. Examples include

electrical power consumption, transportation services, and most raw material inputs. In the short

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run, a firm’s “scale of operations” determines the maximum number of outputs that can be

produced. In the long run, there are no scale limitations.

IPHONE input used and quantity:

Screen and input

The touchscreen is a 9 cm (3.5 in) liquid crystal display with scratch-resistant glass.[41] The capacitive touchscreen is designed for a bare finger, or multiple fingers for multi-

touch sensing. The screens on the first three generations have a resolution of 320 × 480 (HVGA)

at 163 ppi, while that of iPhone 4 and iPhone 4S has a resolution of 640 × 960 at 326 ppi.

The touch and gesture features of the iPhone are based on technology originally developed

by FingerWorks. Most gloves and styluses prevent the necessary electrical conductivity;

however, capacitive styli can be used with iPhone's finger-touch screen. The iPhone 3GS and

later also feature a fingerprint-resistant oleophobic coating.

The top and side of the iPhone 3GS, externally identical to the iPhone 3G. The switches were

black plastic on the original model. From left to right, sides: wake/sleep button, SIM card slot,

headphone jack, silence switch, volume controls. Top: earpiece, screen.

The iPhone has a minimal hardware user interface, featuring only four or five buttons, depending

on the generation. The only physical menu button is situated directly below the display, and is

called the "Home button" because it closes the active app and navigates to the home screen of the

interface. The home button is denoted not by a house, as on many other similar devices, but

a rounded square, reminiscent of the shape of icons on the home screen. A multifunction

sleep/wake button is located on the top of the device. It serves as the unit's power button, and

also controls phone calls. When a call is received, pressing the sleep/wake button once silences

the ringtone, and when pressed twice transfers the call to voicemail. Situated on the left spine are

the volume adjustment controls. The iPhone 4 has two separate circular buttons to increase and

decrease the volume; all earlier models house two switches under a single plastic panel, known

as a rocker switch, which could reasonably be counted as either one or two buttons. Directly

above the volume controls is a ring/silent switch that when engaged mutes telephone ringing,

alert sounds from new & sent emails, text messages, and other push notifications, camera shutter

sounds, Voice Memo sound effects, phone lock/unlock sounds, keyboard clicks, and spoken

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autocorrections. This switch does not mute alarm sounds from the Clock application, and in

some countries or regions it will not mute the camera shutter or Voice Memo sound effects.[48] All buttons except Home were made of plastic on the original iPhone and metal on all later

models. The touchscreen furnishes the remainder of the user interface.

The display responds to three sensors (four on the iPhone 4). A proximity sensor deactivates the

display and touchscreen when the device is brought near the face during a call. This is done to

save battery power and to prevent inadvertent inputs from the user's face and ears. An ambient

light sensor adjusts the display brightness which in turn saves battery power. A 3-

axis accelerometer senses the orientation of the phone and changes the screen accordingly,

allowing the user to easily switch between portrait and landscapemode.[49] Photo browsing, web

browsing, and music playing support both upright and left or right widescreen orientations.[50] Unlike the iPad, the iPhone does not rotate the screen when turned upside-down, with the

Home button above the screen, unless the running program has been specifically designed to do

so. The 3.0 update added landscape support for still other applications, such as email, and

introduced shaking the unit as a form of input.[51][52] The accelerometer can also be used to

control third-party apps, notably games. The iPhone 4 also includes a gyroscopic sensor,

enhancing its perception of how it is moved.

A software update in January 2008 allowed the first-generation iPhone to use cell tower and Wi-

Fi network locations trilateration, despite lacking GPS hardware. The iPhone 3G, 3GS and 4

employ A-GPS, and the iPhone 3GS and 4 also have a digital compass.[55] iPhone 4S

supports GLONASS global positioning system in addition to GPS.

Audio and output

One of two speakers (left) and the microphone (right) surround the dock connector on the base of

the original iPhone. If a headset is plugged in, sound is played through it instead.

The bottom of the iPhone sports a speaker (left) and a microphone (right) flanking the dock

connector. One loudspeaker is located above the screen as an earpiece, and another is located on

the left side of the bottom of the unit, opposite a microphone on the bottom-right. The iPhone 4

includes an additional microphone at the top of the unit for noise cancellation, and switches the

placement of the microphone and speaker on the base on the unit—the speaker is on the right.

Page 10: Profit Maximization

Volume controls are located on the left side of all iPhone models and as a slider in the iPod

application.

The 3.5 mm TRRS connector for the headphones is located on the top left corner of the device.

The headphone socket on the original iPhone is recessed into the casing, making it incompatible

with most headsets without the use of an adapter.[58][59] Subsequent generations eliminated the

issue by using a flush-mounted headphone socket. Cars equipped with an auxiliary jack allow for

handsfree use of the iPhone while driving as a substitute forBluetooth.

While the iPhone is compatible with normal headphones, Apple provides a headset with

additional functionality. A multipurpose button near the microphone can be used to play or pause

music, skip tracks, and answer or end phone calls without touching the iPhone. A small number

of third-party headsets specifically designed for the iPhone also include the microphone and

control button. The current headsets also provide volume controls, which are only compatible

with more recent models. These features are achieved by a fourth ring in the audio jack that

carries this extra information.

The built-in Bluetooth 2.x+EDR supports wireless earpieces and headphones, which requires

the HSP profile. Stereo audio was added in the 3.0 update for hardware that supports A2DP.[51]

[52]While non-sanctioned third-party solutions exist, the iPhone does not officially support

the OBEX file transfer protocol. The lack of these profiles prevents iPhone users from

exchanging multimedia files, such as pictures, music and videos, with other bluetooth-enabled

cell phones.

Composite or component video at up to 576i and stereo audio can be output from the dock

connector using an adapter sold by Apple. iPhone 4 also supports 1024x768 VGA output without

audio, and HDMI output, with stereo audio, via dock adapters. The iPhone did not support voice

recording until the 3.0 software update.

Battery

Replacing the battery requires opening the iPhone unit and exposing the internal hardware

The iPhone features an internal rechargeable lithium-ion battery. Like an iPod, but unlike most

other mobile phones, the battery is not user-replaceable.[58][67]The iPhone can be charged when

connected to a computer for syncing across the included USB to dock connector cable, similar

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to charging an iPod. Alternatively, a USB to AC adapter (or "wall charger," also included) can be

connected to the cable to charge directly from an AC outlet. A number of third-party accessories

(car chargers, portable chargers, battery cases, stereo dock chargers, and even solar chargers) are

also available.

Apple runs tests on preproduction units to determine battery life. Apple's website says that the

battery life "is designed to retain up to 80 percent of its original capacity after 400 full charge

and discharge cycles" which is comparable to iPod batteries.

The battery life of early models of the iPhone has been criticized by several technology

journalists as insufficient and less than Apple's claims. This is also reflected by a J. D. Power and

Associates customer satisfaction survey, which gave the "battery aspects" of the iPhone 3G its

lowest rating of 2 out of 5 stars.

If the battery malfunctions or dies prematurely, the phone can be returned to Apple and replaced

for free while still under warranty. The warranty lasts one year from purchase and can be

extended to two years with AppleCare. The battery replacement service and its pricing was not

made known to buyers until the day the product was launched, it is similar to how Apple (and

third parties) replace batteries for iPods. The Foundation for Taxpayer and Consumer Rights,

a consumer advocate group, has sent a complaint to Apple and AT&T over the fee that

consumers have to pay to have the battery replaced. Since July 2007, third-party battery

replacement kits have been available at a much lower price than Apple's own battery replacement

program. These kits often include a small screwdriver and an instruction leaflet, but as with

many newer iPod models the battery in the original iPhone has been soldered in. Therefore a

soldering iron is required to install the new battery. The iPhone 3G uses a different battery fitted

with a connector that is easier to replace.

The iPhone 4 is the first generation to have two cameras. The LED flash for the rear-facing

camera (top) and the forward-facing camera (bottom) are both unique to that model.

Camera

The original iPhone and iPhone 3G feature a built-in Fixed focus 2.0 megapixel camera located

on the back for still digital photos. It has no optical zoom, flash or autofocus, and does not

support video recording (iPhone 3G does support video recording via third-party App available

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on the App Store), however jailbreaking allows users to do so. Version 2.0 of iPhone OS

introduced the capability to embed location data in the pictures, producing geocoded

photographs.

The iPhone 3GS has a 3.2 megapixel camera, manufactured by OmniVision, featuring autofocus,

auto white balance, and auto macro (up to 10 cm). It is also capable of capturing 640x480

(VGA resolution) video at 30 frames per second, although compared to higher-end CCD based

video cameras it does exhibit the rolling shutter effect. The video can then be cropped on the

device itself and directly uploaded to YouTube, MobileMe, or other services

The iPhone 4 introduced a 5.0 megapixel camera (2592x1936 pixels), also located on the back,

which is equipped with a backside illuminated sensor capable of capturing pictures in low-light

conditions, as well as an LED flash capable of staying lit for video recording at 720p resolution,

consideredhigh-definition. iPhone 4 is the first iPhone that has the high dynamic range

photography feature. In addition the iPhone 4 has a second camera on the front capable

of VGA photos and SD video recording.

Regardless of the source, saved recordings may be synced to the host computer, attached to

email, or (where supported) sent by MMS. Videos may be uploaded to YouTube directly.

The camera on the iPhone 4S is capable of shooting 8MP stills and recording 1080p videos. The

camera can now be accessed directly from the lock screen, and the volume up button as a shutter

trigger. The built-in gyroscope is able to stabilize the camera while recording video.

Beta code pulled from iOS 5 suggests that the next feature to be released will allow users to

capture a panoramic photo on their iPhone.

On all five model generations, the phone can be configured to bring up the camera app by

quickly pressing the home key twice. On all iPhones running iOS 5 it can also be accessed from

the lock screen directly.

Storage and SIM

An iPhone 3G with the SIM slot open. The SIM ejector tool is still placed in the eject hole.

The iPhone was initially released with two options for internal storage size: 4 GB or 8 GB. On

September 5, 2007, Apple discontinued the 4 GB models. On February 5, 2008, Apple added a

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16 GB model.[87] The iPhone 3G was available in 16 GB and 8 GB. The iPhone 3GS came in

16 GB and 32 GB variants and still is available in 8 GB. The iPhone 4 is available in 16 GB and

32 GB variants, as well as a newly introduced 8 GB variant to be sold along side the iPhone 4S

at a reduced price point. The iPhone 4S is available in three sizes: 16 GB, 32 GB and 64 GB. All

data is stored on the internal flash drive; the iPhone does not support expanded storage through a

memory card slot, or the SIM card.

GSM Models of the iPhone use a SIM card to identify themselves to the GSM network. The SIM

sits in a tray, which is inserted into a slot at the top of the device. The SIM tray can be ejected

with a paperclip or the "SIM eject tool" (a simple piece of die-cut sheet metal) included with the

iPhone 3G and 3GS.[88][89] In most countries, the iPhone is usually sold with a SIM lock, which

prevents the iPhone from being used on a different mobile network.[90]

The GSM iPhone 4 features a MicroSIM card that is located in a slot on the right side of the

device.

The CDMA model of the iPhone, like all CDMA phones, does not use a SIM.

Liquid contact indicators

The iPhone is equipped with liquid contact indicators which change from white to red in color

when they come in contact with water. These suggest whether water damage has affected the

device. The indicators on the iPhone include a small disc which is located at the bottom of the

headphone jack and with the iPhone 3G and all later models an additional one is located at the

bottom of the dock connector. The indicators are often used by Apple employees to determine

whether the device qualifies for a warranty repair or replacement. If the indicators show that the

device was exposed to water, they may determine that the device is not covered by Apple.

However, the liquid contact indicators may be triggered through routine use, and if a device is

worn while exercising, the sweat from an owner may dampen the indicators enough to indicate

water damage. On many other mobile phones from different manufacturers, the liquid contact

indicators are located in a protected location, such as beneath the battery behind a battery cover,

but the indicators on an iPhone are directly exposed to the environment. This has led to criticism

of the placement of the indicators, which may also be affected by steam in a bathroom or other

light environmental moisture. In response to these criticisms, Apple made a silent change to their

water damage policy for iPhones and similar products. This new policy allows the customer to

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request further internal inspection of the phone to verify if internal liquid damage sensors were

triggered.

Included items

The contents of the box of an iPhone 4. From left to right: iPhone 4 in plastic holder, written

documentation, and (top to bottom) headset, USB cable, wall charger.

All iPhone models include written documentation, and a dock connector to USB cable. The

original and 3G iPhones also came with a cleaning cloth. The original iPhone included

stereo headset (earbuds and a microphone) and a plastic dock to hold the unit upright while

charging and syncing. The iPhone 3G includes a similar headset plus a SIM eject tool (the

original model requires a paperclip). The iPhone 3GS includes the SIM eject tool and a revised

headset, which adds volume buttons (not functional with previous iPhone versions). The iPhone

3G and 3GS are compatible with the same dock, sold separately, but not the original model's

dock. All versions include a USB power adapter, or "wall charger," which allows the iPhone to

charge from an AC outlet. The iPhone 3G and iPhone 3GS sold in North America, Japan,

Colombia, Ecuador, or Peru include an ultracompact USB power adapter.

# What prices to charge :

Pricing is the process of determining what a company will receive in exchange for its products.

Pricing factors are manufacturing cost, market place, competition, market condition, and quality

of product. Pricing is also a key variable in microeconomic price allocation theory. Pricing is a

fundamental aspect of financial modeling and is one of the four Ps of the marketing mix. The

other three aspects are product, promotion, and place. Price is the only revenue generating

element amongst the four Ps, the rest being cost centers.

Pricing is the manual or automatic process of applying prices to purchase and sales orders, based

on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor

quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or

lines, and many others. Automated systems require more setup and maintenance but may prevent

pricing errors. The needs of the consumer can be converted into demand only if the consumer

has the willingness and capacity to buy the product. Thus pricing is very important in marketing.

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Step 1

Choose a reasonable price for your product, and estimate how much of your product you will sell

for that price. Calculate the profit that will result for these estimates. For example, if you are

opening a gourmet coffee shop, you may charge $2 for a cup of brewed coffee and expect to sell

1,000 cups per day. If your costs per cup are 50 cents, your profit is 1,000 x $1.50, or $1,500 per

day.

Step 2

Select a higher price for your product, and revise your sales estimate (usually downward)

accordingly. For example, if you raise your price to $3 per cup, you may sell half as many cups if

there is nearby competition. Your profits in this case are 500 x $2.50, or $1,250. You make more

per cup, but your overall profits drop.

Step 3

Lower the price of your product, and increase your sales estimates accordingly. If you sell a great

cup of coffee for $1, you can expect to see customers lining out the door—but there are

only so many customers you can fit in your shop at any one time. Some of them may give up and

go to the more expensive coffee shop on the next block. If you double your sales, you sell 2,000

cups of coffee, but you only make 2,000 x 50 cents, or $1,000.

Step 4

Consider external factors that may affect your sales. For example, perhaps you raise your price to

$5 per cup, and you explain (truthfully) to your customers that it is because you are using a

particularly exclusive coffee preparation method. Your costs rise to $1 per cup, but your profits

are now $4. If you sell 400 cups, your profits are $1,600, which are higher than your initial

estimate of $1,500 from selling 1,000 cups of $2 coffee. And servicing only 40 percent as many

customers may have other benefits, such as a much less tiring day.

Step 5

Continue developing price points and sales figures until you determine which mix maximizes

your profits. Then test your estimates against actual sales, and revise accordingly.

For selection the prices there some rule has been followed. Here Describe that:

# Competition based pricing: Setting the price based upon prices of the

similar competitor products.

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Competitive pricing is based on three types of competitive product:

Products have lasting distinctiveness from competitor's product. Here we can assume

The product has low price elasticity.

The product has low cross elasticity.

The demand of the product will rise.

Products have perishable distinctiveness from competitor's product, assuming the product

features are medium distinctiveness.

Products have little distinctiveness from competitor's product. assuming that:

The product has high price elasticity.

The product has some cross elasticity.

No expectation that demand of the product will rise.

# Cost Plus Pricing: Cost-plus pricing is the simplest pricing method. The firm calculates the

cost of producing the product and adds on a percentage (profit) to that price to give the selling

price. This method although simple has two flaws; it takes no account of demand and there is no

way of determining if potential customers will purchase the product at the calculated price.

This appears in 2 forms, Full cost pricing which takes into consideration both variable and fixed

costs and adds a % markup. The other is Direct cost pricing which is variable costs plus a %

markup, the latter is only used in periods of high competition as this method usually leads to a

loss in the long run.

# Creaming or skimming : Selling a product at a high price, sacrificing high sales to gain a high

profit, therefore ‘skimming’ the market. Usually employed to reimburse the cost of investment of

the original research into the product: commonly used in electronic markets when a new range,

such as DVD players, are firstly dispatched into the market at a high price. This strategy is often

used to target "early adopters" of a product or service. These early adopters are relatively less

price-sensitive because either their need for the product is more than others or they understand

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the value of the product better than others. In market skimming goods are sold at higher prices so

that fewer sales are needed to break even.

This strategy is employed only for a limited duration to recover most of investment made to

build the product. To gain further market share, a seller must use other pricing tactics such as

economy or penetration. This method can come with some setbacks as it could leave the product

at a high price to competitors.

# Limit Pricing: A limit price is the price set by a monopolist to discourage economic entry into

a market, and is illegal in many countries. The limit price is the price that the entrant would face

upon entering as long as the incumbent firm did not decrease output. The limit price is often

lower than the average cost of production or just low enough to make entering not profitable.

The quantity produced by the incumbent firm to act as a deterrent to entry is usually larger than

would be optimal for a monopolist, but might still produce higher economic profits than would

be earned under perfect competition.

The problem with limit pricing as strategic behavior is that once the entrant has entered the

market, the quantity used as a threat to deter entry is no longer the incumbent firm's best

response. This means that for limit pricing to be an effective deterrent to entry, the threat must in

some way be made credible. A way to achieve this is for the incumbent firm to constrain itself to

produce a certain quantity whether entry occurs or not. An example of this would be if the firm

signed a union contract to employ a certain (high) level of labor for a long period of time.

# Loss Leader: A loss leader or leader is a product sold at a low price (at cost or below cost) to

stimulate other profitable sales.

# Market Oriented Pricing: Setting a price based upon analysis and research compiled from the

targeted market. This means that marketers will set prices depending on the results from the

research. For instance if the competitors are pricing their products at a lower price, then its up to

them to either price their goods at an above price or below, depending on what the company

wants to achieve

# Penetration Pricing: Setting the price low in order to attract customers and gain market share.

The price will be raised later once this market share is gained.[2]

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# Price discrimination: Setting a different price for the same product in different segments to

the market. For example, this can be for different ages or for different opening times, such as

cinema tickets.

# Premium Pricing: Premium pricing is the practice of keeping the price of a product or service

artificially high in order to encourage favorable perceptions among buyers, based solely on the

price. The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to

assume that expensive items enjoy an exceptional reputation or represent exceptional quality and

distinction.

# Contribution Margin Based Pricing: Contribution margin-based pricing maximizes the profit

derived from an individual product, based on the difference between the product's price and

variable costs (the product's contribution margin per unit), and on one’s assumptions regarding

the relationship between the product’s price and the number of units that can be sold at that price.

The product's contribution to total firm profit (i.e., to operating income) is maximized when a

price is chosen that maximizes the following: (contribution margin per unit) X (number of units

sold).

# Psychological Pricing: Pricing designed to have a positive psychological impact. For example,

selling a product at $3.95 or $3.99, rather than $4.00.

# Dynamic Pricing: A flexible pricing mechanism made possible by advances in information

technology, and employed mostly by Internet based companies. By responding to market

fluctuations or large amounts of data gathered from customers - ranging from where they live to

what they buy to how much they have spent on past purchases - dynamic pricing allows online

companies to adjust the prices of identical goods to correspond to a customer’s willingness to

pay. The airline industry is often cited as a dynamic pricing success story.

# Price leadership: An observation made of oligopoly business behavior in which one company,

usually the dominant competitor among several, leads the way in determining prices, the others

soon following.

# Target Pricing: Pricing method whereby the selling price of a product is calculated to produce

a particular rate of return on investment for a specific volume of production. The target pricing

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method is used most often by public utilities, like electric and gas companies, and companies

whose capital investment is high, like automobile manufacturers.

Target pricing is not useful for companies whose capital investment is low because, according to

this formula, the selling price will be understated. Also the target pricing method is not keyed to

the demand for the product, and if the entire volume is not sold, a company might sustain an

overall budgetary loss on the product.

# Absorption Pricing: Method of pricing in which all costs are recovered. The price of the

product includes the variable cost of each item plus a proportionate amount of the fixed costs. A

form of cost plus pricing

# High-Low Pricing: Method of pricing for an organization where the goods or services offered

by the organization are regularly priced higher than competitors, but through promotions,

advertisements, and or coupons, lower prices are offered on key items. The lower promotional

prices are targeted to bring customers to the organization where the customer is offered the

promotional product as well as the regular higher priced products.

# Premium Decoy Pricing: Method of pricing where an organization artificially sets one

product price high, in order to boost sales of a lower priced product.

# Marginal Cost Pricing: In business, the practice of setting the price of a product to equal the

extra cost of producing an extra unit of output. By this policy, a producer charges, for each

product unit sold, only the addition to total cost resulting from materials and direct labor.

Businesses often set prices close to marginal cost during periods of poor sales. If, for example,

an item has a marginal cost of $1.00 and a normal selling price is $2.00, the firm selling the item

might wish to lower the price to $1.10 if demand has waned. The business would choose this

approach because the incremental profit of 10 cents from the transaction is better than no sale at

all.

# Value Based Pricing: Pricing a product based on the perceived value and not on any other

factor. Pricing based on the demand for a specific product would have a likely change in the

market place.

# Fermium Pricing: Fermium is a business model that works by offering a product or service

free of charge (typically digital offerings such as software, content, games, web services or

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other) while charging a premium for advanced features, functionality, or related products and

services. The word "fermium" is a portmanteau combining the two aspects of the business

model: "free" and "premium". It has become a highly popular model, with notable success.

# Odd Pricing: In this type of pricing, the seller tend to fix a price whose latest digits are odd

numbers. This is done so as to give the buyers/consumers no gap for bargaining as the prices

seem to be less and yet in actual sense are too high. A good example of this can be noticed in

telephone promotions of some countries like Uganda where instead of writing the price as sh.

40000, they write it as sh. 39999. This pricing policy is common in economies using the free

market policy.

IPHONE Prices Charge:

The iPhone 3G is available from four authorized retailers: Apple, AT&T, Best Buy, and

Walmart. All of them, except Walmart, charge the same price for the various iPhone models.

(Walmart's prices are $2 cheaper.) All of these prices require that you sign a new two-year

service contract with AT&T; existing AT&T customers who are eligible for an upgrade will get

these prices, too.

8GB iPhone 3G (Black): $199

16GB iPhone 3G (Black): $299

16GB iPhone 3G (White): $299

AT&T subscribers who are not yet eligible for a handset upgrade will be charged the following

prices:

8GB iPhone 3G (Black): $399

16GB iPhone 3G (Black): $499

16GB iPhone 3G (White): $499

All existing AT&T customers will be charged an upgrade fee of $18, whether or not they are

eligible for the discounted prices.

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To get the iPhone 4 for the lowest price, you must sign up for a two-year service contract with

AT&T or Verizon.

New AT&T customers will get these subsidized prices, as will existing AT&T customers who

are eligible for an upgrade. (AT&T is offering early upgrades to some existing customers; this

articlecan help you find out how to check your upgrade eligibility.)

Verizon Wireless is offering the same subsidized prices to new subscribers and those eligible for

upgrades. Existing customers who are eligible for upgrades can get these prices through the

carrier's "New Every Two" program. Those who are not eligible for upgrades will need to pay

full price, but may be able to take advantage of Verizon's Trade-In Program.

16GB iPhone 4 (Black or White): $199

32GB iPhone 4 (Black or White): $299

AT&T subscribers who are not yet eligible for a handset upgrade will be charged the following

"Early Upgrader" prices. (These prices also require a two-year service commitment.)

16GB iPhone 4 (Black or White): $399

32GB iPhone 4 (Black or White): $499

If you don't want to sign a service contract with AT&T, you'll pay more for the iPhone 4. The No

Commitment prices are:

16GB iPhone 4 (Black or White): $599

32GB iPhone 4 (Black or White): $699

Verizon customers who are not eligible for an upgrade will have to pay full retail price for the

iPhone 4. These prices are:

16GB iPhone 4 (Black or White): $649

32GB iPhone 4 (Black or White): $749

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All existing AT&T customers will be charged an upgrade fee of $18, whether or not they are

eligible for the discounted prices. Verizon Wireless is not charging an activation fee for new

customers.

# How to accommodate changes and promote progress:

Products accommodate changes and promotion is the act of advertising a good or service with

the short/long term goal of increasing sales. Many companies use different techniques to promote

their products through a vast array of communication mediums. In this day and age, there is not

necessarily one communication medium that is better than another simply because the most

affective medium is based on what type of product you are promoting. There is the physical form

of product promotion and the digital form, both of which require clear and concise textual

information about the product being advertised.

Since the turn of the 21st century, many companies have been trying to utilize online social

media for product promotion. Some of the most popular forms of online social media

are Facebook,Twitter, and MySpace. Within an online social media network, companies have the

ability to advertise and promote their products to anyone, at anytime, anywhere in the world.

Because of the vast popularity of social media, companies have had great success on marketing

products to the younger generation who otherwise might not have seen an ad in a newspaper or

on TV.

Product promotion is a very complex process. Prior to doing any promotion, you have to know

your product, your competitors, and your target market. Knowing these will enable you to

determine the most appropriate marketing plan. I suggest that you pick up a book on the subject

to get you started. You may also consider hiring a consultant to create a marketing plan for you.

I think its also important that as well as showing that your product is up to standard with the

competition, you make it very obvious and exciting what is different about your product.

IPHONE Accommodate changes:

1. Markets are dynamic – what is efficient today may not be efficient tomorrow as

tastes, technology, and resource supplies change. Prices help signal those

changes.

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2. An increase in demand for some products will lead to higher prices in

3. Increased demand leads to higher prices that induce greater quantities of output

4. Higher prices lead to more profits and new firms entering the market; lower

5. The guiding function of prices is essential to a well-functioning market system.

In the absence of such signals, government or some similar institution would

have to decide where resources are allocated, but without knowing what people

in society want.

IPHONE Promote progress:

1. The market system promotes technological improvements and capital

accumulation.

2. An entrepreneur or firm that introduces a popular new product will be rewarded

with increased revenue and profits.

3. New technologies that reduce production costs, and thus product price, will

spread throughout the industry as a result of competition.

4. Creative destruction occurs when new products and production methods destroy

the market positions of firms that are not able or willing to adjust.

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#Conclusion:

Profit maximization is the process of identifying the most efficient manner of obtaining the

highest rate of return from its production model. There are several different approaches to this

pursuit of the highest profit margin that may be used by any corporation or business. Most

approaches require that the company look closely at the costs of production, the current levels of

supply and demand, and the price that can be obtained for each unit while still attracting the

highest volume of consumers.

IPHONE profit maximization also looks at factors outside the actual production process. For

example, the focus may be on finding new ways to advertise and promote the product line,

especially if those approaches are likely to generate more revenue and cost less to maintain.

While the manufacturing facility may already be operating at full capacity, the right marketing

campaign can make it possible to move more products and thus increase the bottom line of the

business. This in turn helps to increase the profits that are ultimately realized by the company.

By using the right advertising strategies and selling the goods at prices that consumers are

willing to pay, the goal of profit maximization efforts is reached, and the business can enjoy total

revenue that is at the highest level possible.