Price Formation

Jul 25 09:03 2005 konstantin otto c. botschkowski Print This Article

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,Guest Posting bureaucratic costs, depreciation of the project [design], insurance cost, commercial costs and transport cost.01-00 Production cost 01-01 Material and components 01-02 Labor 01-03 Energy 01-04 Depreciation of the industrial equipment 01-05 Rent of the industrial space 01-06 Allotment

Bureaucratic costs Territorial tax 01-07 Insurance 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 profitNot operational profit [positive or negative] 06-00 Company profit income tax

******************************************************** Taxes Direct taxesCompany income tax Employees Income tax Shareholders Income taxTax 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: . 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 Otto, June, 2005

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konstantin otto c. botschkowski
konstantin otto c. botschkowski

professor of mathematics philosofy

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