Question

You have a small decoration business primarily making custom papier-mâché piñata's. Monopolistic competition. Each customer has unique custom order therefore it is very difficult to figure out the marginal cost of each output. You charge a price of $15 for any small 2' x 2' piñata. Without marginal cost, how can you check to see if the small pinata were profitable?

Answer 1

If you have any doubt please comment.Thank you.

About pricing:

A monopolistically competitive market allows you pricing differentiation to some extent. At the point when your products are novel to the degree that it is very far-fetched to make the same design until the end of time, your current pricing strategy of charging all customers the same price of $ 15 isn't something recommended. Better make three categories, for example, Brand C for $13 each; Brand B for $15 each and Brand A for $17 each. You see the band is narrow here and should work out positively for the customers. The designs which are new and latest, label them Brand A. The designs which are already doing good on sales, label them Brand B. And those requiring less time and cost to make, label them Brand C.

In a monopolistically competitive market, ways to put a keep an eye on the direct cost:

• The cost of base paper used may vary, yet their average cost (for each 100 units produced) must not surpass a very much characterized limit - Say $2 per piece
• Consumables costs: Even however they are direct costs, they are difficult to ascertain for each unit individually. Maintain the record of month to month costs acquired and partition them by number of units produced in the same time frame. This way you will come to think about the average cost caused on each unit.
• Packing cost: Packing material should be disposable and cheap to the extent possible. It could be made from reused materials for keeping the costs under check.
• Delivery cost: This will vary with every customer served. Better keep the delivery liberated from cost if the destination is inside a certain local limit (say up to 3 kms around) and charge extra for longer travels.
• Labor costs: This is another area for development. Better to link the wages with quantity produced and discourage the practice of handing out fixed month to month wages. Or if nothing else use a combination of both.

Ways to put a beware of indirect cost:

• Electricity costs: Keep a watch on the month to month bill that you pay every time. Link it with the number fo days you operated or number of units you produced.
• Administrative costs: If the administrative workload is simple and not all that much, an idea of outsourcing a part of it very well may be a good idea. Instead of yourself hiring a personnel yourself, sometimes it is better to get a practicing professional do it for you all the more accurately and with an increased sense of responsibility.
• Marketing costs: To the extent possible, avoid dispersing printed media, for example, brochures, pamphlets, teasers, and so on Showcasing your all new designs on your site and social media is a good way of reducing the marketing costs.

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