Peter wrote:
> > If you have more work than you can possibly handle, that, by definition,
means that your prices are too low.
Lou replied:
> I disagree. The basic assumption is that you have efficient output and
that you are working at a sustained and consistent efficiency. In other
words, if you were able to build 10 frames per month, but now your
efficiency has dropped to 5 frames per month, that doesn't necessarily mean
you should raise prices just because you can't keep up with your workload.
On the other hand, if you are still building frames at 10 per month and you
have orders that would sustain 20 per month, you have to determine whether
the reason you have those orders is because of your lower price compared to
the competition. Raising prices may drop demand. If you can raise prices
without dropping demand, you are certainly in a good position. How to do
that is a difficult business decision. Lou Deeter, Orlando FL
>
my 2 cents:
As my econ professors kept beating into my head - changing the price of Brian's frames does NOT change demand - it changes the Quantity demanded. Changing some aspect of Brian's frames (like outsourcing the paint) may cause a decrease in demand.
For example: if Brian charges $1.00 per frame, then I would buy one (maybe even two) and so would many other people. If Brian charges $100,000 per frame, then only Chuck would buy one ;-). At $100,000 I still want one so the demand hasn't change but I can't afford it, so only the quantity demanded has changed.
Now say Brian decides he will only make frames out of paper mache'. I don't want any at $1.00 or even $0.01 so there is a change in demand.
As far as where Brian should price his frames, that price point would be where the quantity demanded equals the quantity that Brian is *willing* to supply and leaves no one with cash in hand saying "I'll pay that price" without getting a frame. That's assuming of course, that Brian's goal is to maximize his economic gain ($) instead of other objectives. Production efficiency doesn't play a role in demand. (Marginal revenue and marginal cost on the other hand...)
Taz Taylor - looking for that $1.00 Baylis frame in Atlanta, GA
(I knew an Econ degree would come in handy someday...)