To maximise profit, you need to sell your output at the highest price.
After what you have learned...

Question

To maximise profit, you need to sell your output at the highest price. 
After what you have learned this week with regards to costing systems 
and pricing of products, analyse the validity of this statement. How 
should marginal costs be considered when determining prices?

David · Accepted Answer

To maximize profit, you need to sell your output at the highest price. After what you have 
learned this week with regards to costing systems and pricing of products, analyze the 
validity of this statement. How should marginal costs be considered when determining 
prices? 
All firms strive to maximize the profit so that shareholders return could be maximized. 
Though the price at which a firm sells its product is a major driver of its profit, however price 
independently cannot be used as a sole factor for maximizing the profit particularly in the 
perfectively competitive market scenarios. In a perfectively competitive environment, increasing 
the price can often result in the customers shifting to competitors products thereby decreasing the 
volumes (Mankiw, 1997). For a firm to maximize its profits, it has to keep a balance between to 
price and volumes. The more the units of product a firm sells at profit, more it would maximize 
its profit. Therefore, volumes can highly offset the price hike by the firm and can also increase 
the customer’s loyalty.  
There had been a huge amount of alterations within the collection as well as the 
utilization of the information related to cost due to the increasing computerization as well as 
automation in most of the factories. In the traditional scenario, all the costs were primarily 
allocated to the products, which could be based on the direct labor costs associated with the 
product. However in the current scenario, the firms presently have their primary emphasis on the 
separation of costs related to materials from all the other manufacturing related costs (Hussain, 
2006). All the costs that are related to manufacturing needs to be collected separately for all the 
individual payments as well as individual machines that would be performing a chain of 
activities that would be finally integrated towards getting the final product.  
As a primary strategic management as well as planning tool,

To maximise profit, you need to sell your output at the highest price. After what you have learned this week with regards to costing systems and pricing of products, analyse the validity of this...

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