cost may be defined as the next best foregone alternative. Costs of production
are classified into variable costs and fixed costs. However, costs can be
measured through several different ways. Those that are easy to examine include
replacement costs, total installed costs, financing costs and maintenance costs.
Transparency is very important while carrying out the activity so that there
may be no errors recorded or any cases of fraud. The data collected should be
Externalities refer to a situation
where the activities conducted by an agent directly affect his/her colleague.
They are regarded as failures in the market since they lead to a decrease in
marginal revenue. The prices acquired from this neither match the marginal
revenues nor the marginal costs. In some cases, the government may force some
organizations and large companies to reduce the costs of products that are sold
to the clients. These policies have direct impact in the market. The marginal
costs and revenue will be affected because the government should consider the
demand and supply curve before effecting any changes in prices.
order for the organization in this case to maximize profits earned, several
procedures should be followed keenly. Product differentiation. A company may distinguish
itself from the rest by provision of high quality products and services to the
clients. This may work in a situation where the buyers are not price sensitive
but mainly consider the quality of goods or services that are readily available
in the market. Controlling costs is a method that is very reliable in minimizing
losses likely to be incurred. When a company functions under a low level of
cost, it is flexible and can easily adapt to any decline in prices thus
If the cost is low, the profit
margin remains high. Low price strategy may
also be useful considering that whenever the demand for goods or services is
elastic the prices turn out to be low and the demand becomes stronger.