Question

In price determination, cost acts as:

Options

• The price charged by competitors in the market

• The floor (lower limit) price, above which the profit margin is added

• The minimum price fixed by the government

• The ceiling (upper limit) price of the product

Answer 1

Cost acts as the floor (lower limit) price, and the profit margin is added above cost. This means a firm cannot sustainably price below its total cost, making cost the lowest acceptable boundary for pricing.