The Importance of Pricing Decision in Formulating an Appropriate Business Policy

If the price is set too high, the volume of sale will fall and if the price is set too low, the seller may not be able to cover his total cost. Therefore, the pricing decision is very important for a business firm.

However, all firms are not able to set prices for their products; they are price-takers rather than price-makers and, under the pressure of competition, must accept what they can get for their products.

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So under pure competition sellers have no pricing problems because they have no pricing discretion; they sell at the market price or not at all.

Price policy has significance for the management only when there is a considerable degree of imperfection in competition, so that sellers can make some sales despite disparities with competitors’ prices.

Considering the nature and extent of monopolistic elements, economists classify markets as follows:

Pure Competition Imperfect Competition

Monopoly Monopolistic Oligopoly Competition

We shall consider price output determination under perfectly competitive markets, imperfectly competitive markets, monopoly markets and oligopoly markets.

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