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Discuss the main factors which influence the prices which firms set for their products.
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13/03/04 EQ1082 - THE UK ECONOMY - MICROECONOMICS (BAEcon.) By Gurtej Singh Sahi Discuss the main factors which influence the prices which firms set for their products. Firms have many objectives that they want to fulfil. They include, optimisation, i.e. maximising profits, increasing sales revenue and other objectives such as managerial objectives and gaining market share. Firms set prices for their goods and buyers buy these goods from firms. This is how a firm makes profits or gains sales revenue. This takes us to the main question, what factors influence the prices firms set for their products. To answer this, we need to look at market structures. Market structure may influence firms' pricing. For more concentrated industries the degree of market power may be greater and prices may be higher. We can start by looking at pricing in a monopolistic market. In a monopoly, there is 1 dominant firm with 100% market share. The...
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