Running head: BUSINESS ECONOMICS
Pricing strategy is critical to all business structures since it influences the equilibrium
position of products or services. A change in price affects the equilibrium combination consumers
consume and their willingness to buy at the current price. Monopolies control the market in their
business structure since they have the power to set the price they wish. However, antitrust policies
are critical in the monopoly market to regulate price setting and allow fair competition in the
economy and to the entire society. A change in price impact business operations and determines
its success in the market because price influence expenses that in-turn influence the cost and sale
volume, which determine revenues and profits realized and the overall success in the market.
Monopolist Analysis and the Effects it could have on the Consulting Firm
A monopolist is an individual or a firm market structure dealing with a unique product or
services and faces no close competition since there lack close substitute and has the power to
determine the pricing policy strategy of the product or service. Monopolist controls the market
through pricing policy (Amaldoss, and Jain, 2015). Monopolistic could influence a substantial part
of customers in the consulting firm through a change in price and in -turn, affects its sales volume.
This is because as the law of demand states, a change in price leads to a change in quantity
demanded. For example, a rise in price would result in consumers shift to other consulting firms
to seek services and vice versa. On output decision, the consulting firm could determine the
consumer preference by using utility analysis influence. For instance, setting a price low than the
marginal utility, consumers would increase demand for consulting services because consumer
willingness to buy a product or service depends on their marginal utility.
Evaluation for the need of Antitrust Policies and Pricing Policy Justification under
Antitrust policies refer to government policies that regulate the monopoly`s price setting
to allow free competition and in turn benefit the economy and entire society (Agrawal, Gans, and
Goldfarb, 2019). After the exclusive contract with Vanda –Laye Corporation, antitrust policies are
vital to ensure the consulting firm does not charge a low price that may scare away competitors.
This is because the firm is in a position to set the price as low as possible since no fixed cost it is
obliged to incur. Since there are no fixed costs the firm is covering, it implies that even after paying
the taxes the profits will still be high. Therefore, there is a need for government to set the minimum
price we would charge for our services. Pricing policy in the consulting firm will be justified
through the time we offer our services. For example, providing consulting services off-peak time
such as holidays and at night justifies charging a high price. Lack of fixed cost to cover justifies
the consulting firm charging low prices below the competitor’s level.
Implications of increasing the price to Vanda –Laye Corporation versus its previous
An increase in a price higher than the previously charged price to Vanda- ley would
imply decreased sales volume and revenues. This is because an increase in price increases the
variable expenses and in turn the total cost. Thus the corporation would raise the price of its
products and in turn decrease consumer demands which will lead to decreased sales volume and
revenues. On the other hand, Increase in price charges below what Vanda-Ley was previously
charged implies an increase in sale volume and that increase revenue (Botwinick, 2017). This is
because a reduction in price means the corporation saves and reduces its variable expenses and
in- turn reduces the cost hence passing a fair price to customers. Reasonable price to customers
implies an increase in consumer demand and in -turn increase in sales volume and revenues and
A company’s ability to plan and manage the pricing strategy is vital since price determine
success in a competitive market. The exclusive contract between the consulting firm and VandaLey Corporation render the consulting firm monopolist power to determine its pricing strategy and
decision outcomes. Monopolists can determine the price of their products or service in the market,
but the government may regulate the power to have fair competition in the market. Change in
prices for the consulting firm leads to an increase in sales volume and in -turn revenues realized.
Increasing price for Vanda-Ley verses it previous charges would lead to either an increase or
decrease in revenues depending on the level of increase. Price is a critical tool to determine success
in the market.
Agrawal, A., Gans, J., & Goldfarb, A. (2019). Economic Policy for Artificial
Intelligence. Innovation Policy and the Economy, 19(1), 139-159.
Amaldoss, W., & Jain, S. (2015). Branding conspicuous goods: An analysis of the effects of
social influence and competition. Management Science, 61(9), 2064-2079.
Botwinick, H. (2017). Persistent inequalities: wage disparity under capitalist competition. Brill.
Week 3 Project
Cost – Volume analysis
CVP is an accounting method analyses the effects of changing the costs and volume produced by a
business on the total profits (Shih, W., 1979). This method classifies costs into fixed and variable. All
costs incurred by the business are either classified as variable costs or fixed costs. The method also has
various assumptions. They include, that fixed costs are constant, variable costs per unit are constant,
constant sales per unit, inventory does not remain unsold, and the costs resulting from sales and the
Using this method, various variables are calculated in the analysis. Contribution margin is essential in
CVP, as it is the difference between the sales and the variable cost. It is the amount earned from
inventory sales net of variable costs. Contribution margin indicates profits before fixed costs are
CVP is an important accounting tool for new businesses as it helps them estimate the volumes needed
to earn zero profits. It helps to maximize the amount of production of goods in the company. Fixed costs
make a company make losses from the production of goods in small quantities. For a company to
maximize the production of goods, they consider the costs involved in the production. This method
helps a company determine the number of goods they produce.
Companies also use the accounting tool to estimate the number of goods to earn a targeted income
(Shih, W., 1979). Most companies have a target income for a financial year. In setting the target income,
they expect the income to result from their inventory. Since costs have been affected by variable costs,
they set the target income to determine the amount of inventory to be produced.
The following formulae are used when determining the number of goods produced.
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 +𝑇𝑎𝑟𝑔𝑒𝑡𝑒𝑑 𝑖𝑛𝑐𝑜𝑚𝑒
Required sales in units = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
A company may also wish to estimate the number of goods produced while also accounting for income
taxes (Shih, W., 1979). Income taxes reduce the amount of income earned by the company. The
company may wish to account for income taxes in the determination of the number of goods to
produce. They use the following formula is used in the calculations.
Required sales in units =
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 +𝑇𝑎𝑟𝑔𝑒𝑡𝑒𝑑 𝑖𝑛𝑐𝑜𝑚𝑒+𝑖𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥𝑒𝑠
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
Break quantities are calculated using = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
Contribution margin per unit
Using alternative A, the company would need to produce 64,000 units to make zero profits while for
alternative B, the company would need to sell 40,000 units to earn zero profits. The units calculated
above are the units required for revenue earned to be the same as the costs incurred by the business.
For Vanda-Laye Corporation when using alternative A, it will need 64, 000 units while under alternative
B they will need 40,000 units in order to start making profits. The minimum number of units needed for
a company to be on the profits side is more than the units as above.
While assessing both alternatives, A would require 64,000 units to earn a zero profit while B would
require 40,000 to earn zero profits. For the contribution margins of, from one unit of sale, the company
would earn 57% without factoring in fixed costs while for B the company would earn 28% without
factoring fixed costs.
I would select alternative B because:
It is the alternative with the least fixed costs. Having less fixed costs indicates that the
company will produce fewer goods in order to reduce the effects of costs.
The units needed by the company to meet break-even units are less using alternative B
than in alternative A. Under alternative A, they will need to manufacture 64,000 units
while under B they will need 40,000 units.
Since B has fewer units, it is easier for a company to sell 40,000 units than 64,000 units before making
profits. Lower units of inventory needed to make zero profits indicate lower amounts of time taken by a
business to record profits (Shih, W., 1979).
Jaedicke, R. K., & Robichek, A. A. (1964). Cost-volume-profit analysis under conditions of
uncertainty. The Accounting Review, 39(4), 917.
Shih, W. (1979). A general decision model for cost-volume-profit analysis under uncertainty. Accounting
Adar, Z., Barnea, A., & Lev, B. (1977). A comprehensive cost-volume-profit analysis under
uncertainty. The Accounting Review, 52(1), 137.
Running head: THEORY OF UTILITY
Theory in Utility
THEORY OF UTILITY
Companies use utility analysis to show how price changes of a product or service alter
the equilibrium combination of goods that the consumer consumes. The law of demand states
that a change in the demand price of a commodity causes an opposite change in the quantity of
the commodity demanded. Vanda-Laye Corporation can use marginal utility theory to determine
the cost of production and the price on the utility which the consumer is receiving from the
products. The company can determine the choice of quantity and preference of the consumer
using the utility theory. For example, if the management finds that the unit of consumption of
their products is declining as the level of the quantity of goods rises, then they can lower their
prices or give discounts to attract consumers (Ingersoll, 2016). Notably, consumers will continue
purchasing from the company when the marginal utility for the additional commodity is more
than the price. If the price exceeds the marginal utility, the consumer lowers or ultimately stops
purchasing additional goods. As the law of demand suggests, a consumer’s willingness to
purchase a good depends on his/her marginal utility. The price and marginal utility are inversely
related, which explains the utility theory; therefore, helping the company determine the best
pricing strategy for its product.
The total revenue of a company equals to the number of sales and all the other income it
accrues within a specified period. One of the information is that the company needs to measure
its cost, revenue and profit to determine its success. The company may have high revenue, but
with high costs, there are no profits. The company has to find ways of maximizing profits
through managing and measuring costs and revenue. The typical way of measuring cost and
THEORY OF UTILITY
revenue is using the gross profit; revenue equals cost plus the profit. The key to understanding
the profitability of Vanda-Laye Corporation is by determining the relationship between expenses
and revenue. How costs change with revenue changes determines how the company structures its
expenses in terms of fixed and variable expenses. The company has many competitors and to
realize a significant profit it has to meet and exceed the expectations of its customers. However,
the company will need a reasonable budget and planning procedure to help with measuring the
expenses and revenue and gain some profit. If it knows how costs fluctuate with sales, then the
company can determine the bottom line of each sales volume.
This information will tell me about the company that the profit will increase as the sales
increase. Therefore, Vanda-Laye Corporation will use the revenue and cost relationship
information to get a profitability analysis (Weisbach, Hemel, & Nou, 2018). In addition to this,
the information is essential when estimating profits at different sales volumes and what level to
Supply and demand for goods are related to each other, and as per the economic theory,
their relationship affects the price of the commodities. The fundamental principle of the supply
and demand law is that the product prices fall when its supply exceeds demand and vice-versa.
The company can use planned economies or its consumer's behavior to create demand. For
example, Vanda-Laye Corporation can either set a maximum or a minimum price being aware of
the consequences of either inflating or deflating the supply or demand.
THEORY OF UTILITY
When the prices are artificially low, then the competitor's demand will increase, but the
company may find it challenging to keep pace with the supplies. It has to decide on a price that is
not too low or too high.
Ingersoll Jr, J. E. (2016). Cumulative prospect theory, aggregation, and pricing. Critical Finance
Review, 5(2), 305-350.
Weisbach, D. A., Hemel, D. J., & Nou, J. (2018). The Marginal Revenue Rule in Cost-Benefit
Analysis. Tax Notes, 160(11), 1507-1528.
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