Illustrates the role of cost in pricing
Illustrates the role of cost in pricing?
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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.
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When, for a specified output level, an absolute or perfectly competitive firm's price is less in that case its average variable cost, so the firm: w) is earning a profit. x) must shut down. y) must increase output. z) must increase price. Discover Q & A Leading Solution Library Avail More Than 1421853 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads No hassle, Instant Access Start Discovering 18,76,764 1961231 Asked 3,689 Active Tutors 1421853 Questions Answered Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!! Submit Assignment
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