ABSTRACT
This chapter summarizes introductory aspects of price theory concepts commonly used in describing economic theory of markets. The ideas and formulations presented are generalized for modeling transactions in the equilibrium states of elastic and nonelastic market models. Economic theory indicates that when commodity prices are equal to marginal costs, the resulting levels of production and consumption will be most efficient, and that marginal prices are induced through competition. Marginal cost pricing is the principle that the market will, over time, cause goods to be sold at their marginal cost of production. Whether goods are in fact sold at their marginal cost will depend on competition and other factors, as well as the time frame considered. In economics and finance, marginal cost is defined as the change in total cost that arises when the quantity produced changes by one unit or increment.
