Illustrates the role of cost in pricing

Question

Illustrates the role of cost in pricing?

Answer 1

Mainly of the wholesale and retail organizations add several percentage of profit or mark up total cost per unit to attain at selling price. In words of Hall and Hitch, business firms under the conditions of monopolistic competitive and oligopoly market do not find out price and output with the assist of the principle MC=MR. They find out price and output on the basis of full average cost of production. Cost of production comprises fixed and variable costs. Under the short run the firm may not cover the fixed cost but this should cover at least variable cost. Under long run all costs should be covered.

If the whole cost is not recovered, the firm will acquire losses, and the firm should stop their production. Therefore costs provide the basis for pricing. When the cost raises price also increases. Cost shows a resistance point for lowering of price that is below that pricing should not be completed. Cost also find out the profit margin at different level of output.