Question:
Explain the following factors affecting price determination of a product :
(i) Product cost
(ii) Pricing objectives
Explain the following factors affecting price determination of a product :
(i) Product cost
(ii) Pricing objectives
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The price must cover the product cost, and it should also match what the firm aims to achieve, such as profit or market share.
Updated On: Oct 26, 2026
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Solution and Explanation
Step 1: Why these factors matter:
The price is fixed after looking at cost and aims. Two of the factors are explained below.
Step 2: (i) Product cost:
Product cost includes the cost of production, distribution and selling. It has fixed, variable and semi variable parts.
The price must cover the cost, at least in the long run.
So cost sets the lowest limit of the price.
Step 3: (ii) Pricing objectives:
Pricing objectives are the aims the firm wants to achieve with its price.
Examples are profit maximisation, a target return, a bigger market share, leadership in quality and survival in a tough market.
A firm that wants a large market share will keep its price low. A firm that wants a premium image will keep it high.
Final Answer:
Cost decides the lowest price the firm can charge, and the pricing objective decides the direction in which the firm sets it.
The price is fixed after looking at cost and aims. Two of the factors are explained below.
Step 2: (i) Product cost:
Product cost includes the cost of production, distribution and selling. It has fixed, variable and semi variable parts.
The price must cover the cost, at least in the long run.
So cost sets the lowest limit of the price.
Step 3: (ii) Pricing objectives:
Pricing objectives are the aims the firm wants to achieve with its price.
Examples are profit maximisation, a target return, a bigger market share, leadership in quality and survival in a tough market.
A firm that wants a large market share will keep its price low. A firm that wants a premium image will keep it high.
Final Answer:
Cost decides the lowest price the firm can charge, and the pricing objective decides the direction in which the firm sets it.
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