Costs and cost structures are important factors to be considered in pricing policy but other factors are of equal or greater importance. Price per unit and quantity sold will frequently be related and knowledge of the relationship, the price elasticity of demand, will be of prime importance in the pricing decision.
However, just as price and quantity sold are related so too are quantity produced, itself a function of expected sales, and total cost. Therefore, if price is to be set in order to maximise or optimize profit, knowledge of cost structures and cost behaviour will be of great use in determining optimum levels of output and price per unit.
Of greatest use will be cost data which allow the decision maker to observe the effect of changes in output on total cost – therefore information concerning cost structures and cost behaviour is of more use than just a figure which purports to be ‘cost’.
