Notes, summaries, assignments, exams, and exercises for Economics for University

Special Pricing Strategies

1. For a New Product

Different stages in a product’s life cycle involve different goals, which require different pricing strategies.

A. Market-Skimming Price

Setting a high price for a new product to skim maximum revenues layer by layer from segments willing to pay the high price; the company makes fewer but more profitable sales. Example: Apple introduces new products with high prices, and then, when the new model is introduced, the older model decreases in price.

Conditions:

• Good quality and image
• Enough buyers
• Profitable → revenues can’t be offset by the costs of producing on a small scale
• Competitors can’t enter easily

B. Market Penetration Price

Setting a low price for a new product in order to attract a large number...

External Environment Tools

PESTEL Analysis

List of influences on the possible success or failure of strategies:

• Political Factors: Government policies, taxation changes, trade regulations. Zara's corporate social responsibility is transparent; Zara collaborates with communities in its areas of operation and has a code of conduct.
• Economic Factors: Business cycles, interest rates, GDP trends. Zara conducts deep consumer research and acts in a unique way. Export and import concerns affect performance.
• Social-Cultural Factors: Population changes, income distribution. Zara has a good image through donations and charity. Zara embraces diverse cultures, and its brand is known worldwide.
• Technological Factors: ICT innovations, new discoveries, and technological

Core Commercial Service Logistics Parameters

From a logistics perspective, commercial services fundamentally rely on three key parameters:

• Merchandise availability for immediate delivery to the client.
• Quick merchandise delivery.
• Reliability of the promised delivery date to the customer.

Warehouse Definition and Challenges

A warehouse is a "planned space for the efficient location and handling of materials and merchandise." Warehouses aim to solve two primary problems:

• Correct layout design.
• Efficient handling of operational processes (product inputs and outputs).

Warehouse Operational Processes

A warehouse can be considered a production center where a series of processes are carried out:

• Receiving merchandise.
• Product adaptation (packing, labeling, etc.

Leases

• Operating lease: a shorter-term lease under which the lessor is responsible for insurance, taxes, and upkeep, cancelable by lessee on short notice.
• Financial lease: a longer-term, fully amortized lease which the lessee is responsible for maintenance, taxes, and insurance. Not cancelable without penalty.
• Leveraged lease: a tax-oriented lease in which the lessor borrows a substantial portion of the purchase price of the leased asset on a nonrecourse basis.
• Sale and leaseback: occurs when a company sells an asset it owns to another party and simultaneously leases it back.
• Capital lease: transfer ownership to lessee by the end of the term, lesses purchase the asset at a price below fair market value when lease expires, >75% economic life,

MARKET VALUE PERFORMANCE MEASURES

MVA

Market Capitalization = (#shares * price per share) - Equity

MTBR

Measures how much value has been added for each dollar that shareholders have invested = MVOEQUITY / BVOEQUITY

MEASURING PROFITABILITY

EVA

Economic Value Add or Residual Income = The profit after deducting all costs including the cost of capital = After-tax operating income (after tax interest + NI) - (cost of capital * total capitalization at the start of the year) = ((1- tax rate)(interest expense) + NI) - (cost of capital)(long term debt + total equity beginning of year)

ROE

NI / Equity start

ROA

(1-tax rate) * interest expense + NI / Total Assets start

ROC

(1- tax rate) * interest expense + NI / LTD start + Equity start

MEASURING EFFICIENCY

How effectively...

Monetary Policy

Monetary policy hinges on the relationship between interest rates (the cost of borrowing money) and the total money supply within an economy. It employs various tools to control one or both of these factors, aiming to influence outcomes such as economic growth, inflation, exchange rates, and unemployment. When a single entity controls currency issuance or a regulated system governs it through banks linked to a central bank, the monetary authority can adjust the money supply and, consequently, influence interest rates.

Monetary policy focuses on managing:

1. The supply of money
2. The availability of money
3. The cost of money (interest rates)

These efforts aim to achieve objectives related to economic growth and stability.

Objectives of Monetary

Decision Trees: Excellent tools for choosing between courses of action. They help form a balanced picture of risks and rewards for each option.

Capital Markets: Markets where governments or companies raise money (capital) to fund operations and long-term investments. Selling bonds and stocks are two ways to generate capital.

Primary vs. Secondary Markets:

In the primary market, securities are first issued to investors through an initial public offering (IPO). Investment banks assist with IPOs by guaranteeing a minimum price before selling to the public.

The secondary market—where people buy and sell previously issued securities—includes stock exchanges, bond markets, and other entities that trade financial instruments. Securities trade based...

Market Type Comparisons

• Niche market is the smallest type of market. (Small)
• Luxury market is more expensive than other markets. (Expensive)
• Mass market is the most popular type of market. (Popular)
• Mass market is larger than niche market. (Large)
• Luxury market is the most expensive type of market. (Expensive)
• Home market is smaller than export market. (Small)
• Home market is the most boring market in Chile. (Boring)
• Technology market is the most modern market nowadays. (Modern)

Brand and Product Comparisons

• Dominos makes the best hot dogs in Chile. (Good)
• Apple is more interesting than Samsung. (Interesting)
• Volvo is the safest car. (Safe)
• Rolex is fancier than Casio. (Fancy)
• Mc Cola is worse than Coke. (Bad)
• Microsoft has the most stable computer. (Stable)

Key Business Approaches

3 Approaches:

• Work and organizations (planning, organizing, controlling)
• People (communication, motivation, leadership, work group formation)
• Production and operations

Essential Entrepreneur Skills

5 Critical Entrepreneur Skills:

• Leadership
• Communication
• Decision-making
• Teamwork
• Strategic Vision

Common Entrepreneurial Mistakes

5 Mistakes:

• Unclear goals
• Trying to prove you're smart
• Greed
• Hiring people they like instead of need

The 3 C's of Business

3 C's:

• Company
• Customers
• Competition

Start-Up Costs

Start-Up Costs:

1. Expenses (legal structure, workspace, remodeling, stationery, logos, web page)
2. Purchase assets (inventory, office supplies)
3. Ongoing monthly expenses (rent, utilities, payroll, insurance)
4. Monthly sales projections

Business Plan Components

Executive