ABSTRACT
This chapter discusses economic theory related to price, especially the concepts of elasticity and break-even levels. The practical business person can, however, expect little direct help from the academic in applying economic theory to the solution of everyday pricing problems. Pricing policy refers to the framework of rules and constraints within which, and perhaps by which, pricing decisions are taken. The right price is not necessarily what theorists would call the ‘best-selling price’ in the sense that it maximizes profits for a given product considered by itself. The precise combination and weighting of factors determining pricing policy and price-setting will depend on the product, the market and other circumstances. Longer-term financial objectives tend to be set in the context of achieving a targeted average level of return on investment or profit for the whole of the company which is considered by the firm to be ‘reasonable’ taken over a period of years.
