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Price Formation

By: konstantin otto c. botschkowski, Sat Dec 10th, 2005 12:10:46 PM

Price Formation The price is formed at the market. Increasing the price, it lowers the sale volume. Increasing the publicity, it increases the sale volume. Increasing the product quality [investing in design], it increases the sale volume. In this model of tendencies we have variables: price, sale volume, publicity and product quality. Are missing variables; profit relative to the sale amount, profit relative to the employed capital and employed capital. As profit is here understood this variable under several focuses [sees below]. In this simple model, of tendencies, we have seven variables. Cost consists of: Production cost, bureaucratic costs, depreciation of the project [design], insurance cost, commercial costs and transport cost. 01-00Production cost 01-01Material and components 01-02Labor 01-03Energy 01-04 Depreciation of the industrial equipment 01-05 Rent of the industrial space 01-06 Allotment Bureaucratic costs Territorial tax 01-07Insurance costs [business risk] Against sinister Against commercial risk 02-00 Depreciation of the project [design] of the product 03-00 Cost of the transport Transport Insurance Taxes [trading] 04-00 Commercial costs Publicity Commissions 05-00 Profit consist in: 05-01 Direct taxes Excise ect... 05-02 Profit of the company [gross] Operational profit Not operational profit [positive or negative] 06-00 Company profit income tax ******************************************************** Taxes Direct taxes Company income tax Employees Income tax Shareholders Income tax Tax built-in the expenses of consumption of employees and shareholders ******************************************************** To analyze the cost and the operational profit, in viable period, we needs to appeal to a fast software, for instance that described in: http://oz.pro.br/w/ . For analysis of the not operational profit we needs to appeal to the specific software of marketing. This software creates a mathematical model, starting from the statistics of the four variables: w - price; x - sale volume; y - publicity; z - quality And it creates a lineal model: Aw+Bx+Cy+Dz=0, from the sampling of four up to ten competitors, of the same market. For instance: manufacturers of soft drinks, of refrigerators, of televisions, ... Each calculation is made with four competitors, to obtain four coefficients [A, B, C, D]. In the case of 'n' [more than four] competitors, forming 'm' goops of four, it obtain 'm' games of coefficients and a game of an average of these. This lineal model is exact only for small variations. Larger accuracy obtains the no lineal model: Aw+Bx+CA y^2+CBy+Dz=0. The models are less exact as larger variation. But better a model less exact than any model. With this model the software defines the variables: profit on sale amount, profit on employed capital, employed capital and it optimizes profit on employed capital. ********************************************************** The taxes are analyzed to determine the integral participation of aggregate amount in the state economy. Coffee-Break http://oz.pro.br/wc/ Download http://oz.pro.br/coffee/coffee.zip Konstantin Otto, June, 2005 oz@oz.pro.br

About the author: Professor of mathematics' philosophy retired I write articles in four languages, since 1946. More of them are specific. oz@oz.pro.br

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