Question

arla, the marketing manager at Regal Inc., is in the process of setting prices. She has finished analyzing the competitive price environment. According to the price-setting process, what should be Carla’s immediate next step?

Answer 1

Answer:

Based on the assumption that Arla's company or firm in this case operates in a perfectly competitive market structure,Arla could set its marginal cost of production(MC) per unit product or service price equivalent to maximize the firm or company's total or overall profit.

Explanation:

• A competitive market structure is usually characterized by the presence of many sellers and buyers with no legal or administrative barriers to entry or exit of any individual firm or company.All the sellers or firms tend to sell identical or similar products or services.
• Due to no barriers to exist or enter the market for the firms or sellers,the market competition or rivalry is fairly high which explains relatively higher price elasticity of demand among consumers or buyers in competitive markets.
• Due to relatively high market competition and price elasticity of demand,the individual firms or companies in the market do not have any market power or price setting ability in the market which essentially makes them price takers.The individual firms or sellers in the competitive markets usually experience a uniform or constant market price for the concerned product or service and maximize total or overll profit by producing the particular output at which the marginal or incremental or additional cost/expense of producing one more unit of output is equal to the per unit price of the output.
• Hence,Arla can perform some cost or output analysis to determine its profit maximizing level of output which corresponds to the principle of the equalization of per unit output price and the marginal cost of production.In this pursuit,it has to identify the production or particular output level at which the above-mentioned price setting criteria of the competitive market is satisfied.