Question

What are the factors affecting determination of the price of a product or service? Explain.​

Answer 1

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Main factors affecting price determination of product are: 1. Product Cost 2. The Utility and Demand 3. Extent of Competition in the Market

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Answer 2

Answer:

) Cost of Production: Cost of production is the main component of price. No company can sell its product or services at less than the cost of production. Thus, before price fixation, it is necessary to compile data relating to cost of production and keep that in mind. There are two types of cost: (a) Fixed Cost (e.g., Rent of building, Salary of permanent staff, etc.)

(b) Variable Cost (e.g., Material, Labour, etc.). At least the price should be able to recover the variable cost as the fixed cost are incurred whether the production takes place or not.

(ii) Demand for Product: Intensive study of demand for product and services in the market be undertaken before price fixation. If demand is relatively more than supply, higher price can be fixed.

(iii) Price of Competitive Firms: It is necessary to take into consideration prices of the products of the competing firms prior to fixing the price. In case of cut-throat competition it is desirable to keep price low.

(iv) Purchasing Power of Customers: What is the purchasing power of the customers and at what price and how much they can purchase? It should also be taken into consideration.

(v) Government Regulation: If the price of the commodity and services are to be fixed as per the regulation of the government, it should also be bome in mind.

(vi) Objective: Usually, at the time of price fixation a certain amount of profit is added to the cost of production. If company’s objective is to earn wants higher profit it may add higher amount of it.