Recap Test of Key terms Theme 1 Topic 6 Define the following terms (3) Fixed Cost Variable Cost Average/Unit Cost Calculate the BEP if the FC = £1000, VC = £20, Price = £30 (3) What would be the margin of safety if expected level of sales are 200 units? (1) Why is break even analysis useful to a business? (3)
Business objectives and how they link to pricing decisions Starter - Growing strawberries pg 18
Lesson Objectives All students will consider the differing objectives businesses set and how pricing decisions link to these Most students will be able to understand the why these differ Some students will understand the trade-offs involved when setting objectives and price
Recap – Economies of scale Economies of scale are the cost advantages that a business can exploit by expanding their scale of production. The effect of economies of scale is to reduce the average (unit) costs of production.
Recap - Diseconomies of scale Increases unit cost that occur as a business grows larger, often associated with communications issues or costs of coordination. Imagine you add more people to be involved in decision making processes, it may eventually become harder to share information effectively. Beyond a certain point, increasing size will bring disadvantages rather than advantages and push average costs up.
Recap - Minimum efficient scale This is the level of output at which average or unit costs can be minimised Economies of scale will push average cost down as output increases until diseconomies outweigh any further possible economies
Marginal Cost and Revenue Marginal Revenue is the change in revenue from selling one more unit Marginal Cost is the change in total costs from selling one more unit Look at worked example top of pg 21
Impact of objectives on pricing decisions Consider questions pg 22 When deciding on the price to set businesses have to consider their objectives and how the price they set can affect the success of meeting these – things to consider; Profit maximisation? Reputation? Going for growth? Developing brand loyalty? Ethical stance?
HWK Revise for test on 1.1 – scarcity choice and potential conflict
task Exam style questions pg 23