Like, who decided a carton of eggs cost 5$, or a specific car costs $50,000? I understand some of it is based on raw materials cost, labor costs, etc.
And big manufacturing companies can have market analysis to determine what price to make profits via supply and demand. But for basic commodity goods like groceries that are sourced from farmers and the like, how did they land on a specific number?
In: Economics
For items that have been around a long time, you can “turn the dial” on your price, and see what happens to your sales. Obviously you could make your eggs 1 cent per dozen, and sell them all, and go broke. If you charge a dollar a dozen and they all sell, you could try $1.25, $1.50, and so on until you find a price where you’re selling *almost* all your eggs, and around there is where you stop. (With something nonperishable, you might consider continuing to raise the price, but a 6-month-old egg is no good to anybody, so ideally you want a price that gets 100% of your eggs off the shelf before they become garbage.)
If your product is brand new and doesn’t have any history, like if you’re producing a new kind of car, you can do market research to see what your competition is – i.e. what cars already exist that are sort of close to yours. If your car is comparable to a Cadillac CT5 ($38,000-ish) or a Toyota Camry (up to $35,000-ish), now you get to decide how to market your car. You can try “ours is just as good and a bit cheaper”, or “we’re a bit more expensive because we’re prestigious”; that depends on what you think your customers are like, and what your advertising department thinks it can pull off. 🙂
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