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WHAT IS MARKUP PRICING
The basis for this theory is that, when the sellers are asked as to how they arrive at the prices that they fix in order to sell their products, there was one answer that came from many. It was the markups. They also call it the profit margins.
There are a lot of ways in which a firm can raise its profits. This can be done by making the marginal cost to be equal to the marginal benefit.
But these days, there are many the businessmen who are trying to find out the marginal costs and the marginal benefits, and then they are trying to do the comparison between those two.
Example of Markup Pricing
There is a real case that had happened in the 1960s. There was a firm that had used the concept of marginal benefit. They were found to be very much in benefit due to it.
There were the continental airlines that had decided things based on the extra costs of the flight considering the revenues that it could possibly make.
They decided upon which are the lights that they would fly based on this analysis of theirs. There were the other airlines that were deciding things based on the percentage of occupancy seen by the flights. This made a huge difference to them.
From the economists' point of view
There is a theory that has been constructed by economists in this regard. They decided to do this based on the firms that used the markup cover costs in order to decide the prices that they would set for the consumers.
The basis for this theory is that, when the sellers are asked as to how they arrive at the prices that they fix in order to sell their products, there was one answer that came from many. It was the markups. They also call it the profit margins.
The difficult part of this theory lies when the percentage of markup is tried to be found. In the case of the grocery stores, there are different percentages used to markup for each of the products. They on average have a markup that is very less than that in the case of a furniture store.
The economists consider this rule of markup to be the thumb rule to many things.
They consider this to be a way in which the firms would be able to conduct their affairs. Since the firms do not have ways to find out the marginal costs and the revenues, they stick to the other ways or guidelines possible to them to perform in a satisfactory manner.
Mark Up Pricing Homework Help