43. Business and prices

An integral and important component in the business activities of the company is the price of goods and services.

Price serves as the only element in the activities of the firm, which is the producer of profit. The price, in contrast to the quality and properties of the goods, is a very flexible element that can be subject to rapid change.

The price reflects the quality characteristics of the product, which affects the pricing policy.

Pricing policy is to solve one of five tasks, which include:

1) “cream skimming” policy;

2) survival;

3) increase in current profit;

4) the desire to become a leader;

5) increase in market share.

The price of a product depends on the level of consumer demand. An indicator that reflects the dependence of price levels on current demand is called the demand curve. In a normal social environment, price and demand are inversely proportional. This means that an increase in the price of a good reduces the demand for it.

The opposite dynamics is observed in relation to prestigious goods. Some categories of buyers prefer to purchase high quality goods at high prices.

The demand curve characterizes the reaction of buyers who belong to different categories, i.e., determines their sensitivity to price. A firm can use one of three methods to analyze demand curves:

1) statistical analysis of factors affecting the relationship between prices and sales volumes;

2) conducting experiments with prices;

3) a method of surveying buyers, during which the degree of dependence of the quantity of purchased products on the level of prices for it is clarified.

In addition to the demand curve, to determine the sensitivity of demand to the prices of goods, there is the concept of elasticity of demand. If the demand for goods changes even with a slight change in prices, this indicates the elasticity of demand. If, when prices change, demand remains almost unchanged, we can talk about its inelasticity.

There are two types of costs: fixed and variable.

Fixed costs are those costs that do not depend on production volumes and volumes of products sold (payment for energy, heating, rent, salaries to company employees, and others).

Variable costs reflect the costs that are associated with the production level of the firm.

Total costs are the sum of the fixed and variable costs of a firm.

Average cost is the cost per unit of output. Average cost is determined by dividing the total cost by the volume of output produced.

Authors: Egorova E.N., Loginova E.Yu.

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