(Drury) Pricing Decisions and Profitability Analysis - The role of cost information in pricing decisions

4 important questions on (Drury) Pricing Decisions and Profitability Analysis - The role of cost information in pricing decisions

What is a price taker?

A firm that has little or no influence over the prices of their products or services.

In what situations are firms set to be price takers? (2)

1. When prices are set by overall market supply and demand forces. This situation is likely to occur where there are many firms in an industry and there is little to distinguish their products from each other. No one influence prices significantly by its own actions.
2. Small firms operating in an industry where prices are set by the dominant market leaders.

In what situation a firms price setters? (2)

1. Firms selling products or services that are highly customized or differentiated form each other by special features.
2. Firms that are market leaders.
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What influences the pricing decisions in a price setter situation? (3)

1. Cost of the product
2. Actions of competitors
3. Extent to which customers value the product

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