ABSTRACT
This chapter examines a key part of the theory, hedonic prices and costs. Prices give information which may be used for economic analysis such as this, but the information a price gives depends on the market and market circumstances that formed the price. Hedonic theory assumes that price is positively related to level of characteristic. The buyer entering a market faces a set of prices, the 'quality prices'. The 'implicit prices' for each characteristic are calculated by regression on the quality prices he price list for the product lines on the market. Quality changes in the short run are not desirable when they require investment or when they would put the brand image at risk. The chapter explores the importance of grades, uniformity and tolerances. These aspects of quality can be changed by sorting and by different production methods.
