Pricing and Output Decision-making

Pricing and Output Decision-making Some firms will prefer buying their most important inputs in close to perfectly competitive markets because these markets have many buyers and sellers but this market has very strict conditions; they are limited in determining the prices for goods and services since they only take prices already set. Their demand curve is elastic. These firms will then sell their outputs in imperfectly competitive markets because here the conditions are flexible; the sellers are able to change the prices of their goods and services. They can decide to lower or increase prices in their favor at their convenience. These markets have a downward demand curve and thus increase in price leads to decrease in demand and vice versa.

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PRICING AND OUTPUT DECISION-MAKING

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Many firms in some industries engage in this type of business; examples include those in agricultural industries like that of corn and wheat markets. A few examples include: General Mills, Nestle, Post Foods, Malt-O-Meal, and Quaker Oats, et cetera. Another example is that of oranges sold under brand names of Tropicana Products, Minute Maid, Florida's Natural, and so on. These are perfectly competitive firms but they sell their output to imperfectly competitive markets. The other example is the auction markets since the sellers and buyers have power to determine the prices of the market products (McEachern, 2008).

The profits of firms that operate under such kinds of business tend to increase with the increase in input supply. This is because these firms are able to acquire these inputs at a fixed price regardless of the increase in demand and supply (McEachern, 2008). Since the products are sold in an imperfectly competitive market, the companies can sell them at varied prices. A firm that determines prices of its products will at all time experience a supply curve that has a rising gradient. This is because the firm can set the prices depending on the amount of the aspects that particular firm is out to acquire. This may be at a higher cost than that of purchase. The result of increased supply of low cost products is increased profits (Hall, 2008).

PRICING AND OUTPUT DECISION-MAKING References Hall, R. E. (2008). Potential competition, limit pricing, and price elevation from exclusive conduct. Issues in Competition law and Policy, 1, 433-448.

McEachern, W. A. (2008). Economics: A contemporary introduction. Mason, OH: Cengage Learning.

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