Question

What is important about the Fair Pricing price and when would it be used instead of the Social Optimal price?

Answer 1

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Below is the answer to your question :

In commercial area, the price has a major importance, being frequently considered among the main criteria used in buying decision process. Price fairness derives from equity theory and it is focused on assuring in a transaction a reasonable report between the customer’s sacrifice and the value offered by the seller. In three marketing experiments we have evaluated customers’ fairness perceptions of differential prices, this tactic being frequently used by sellers. One important finding was that the motive for setting differential prices is important in fairness evaluation. Price differences based on social motives are perceived fairer than those motivated by company’s interest.

The differential prices on customer category are perceived fairer than zone prices. In all three marketing experiments it was demonstrated that price fairness has a significant influence on value perception and on buying intentions. Fair prices setting is one of the principles sustainable marketing is based on, reflecting a long term orientation for a company. By following this decisional direction, the commercial firm increases the value offered to its customers and it becomes more socially responsible.

Answer (1)

In order to maintain a socially optimal price for a regulated economy, the monopoly business should manufacture goods at a price which intersects the marginal cost curve. In this price, the profit will be maximum. This is the most favorable supply of resources in the society as it considers both internal and external factors. The noted fact is that, in this output, monopoly can gain allocative efficiency and prevent the dead weight loss.

Uses instead of Social optimal price

The socially optimal level of consumption of any good or service occurs where the benefit to the user of the last unit consumed (ie, the MPB) is no more and no less than the total cost borne by society when that unit is consumed (ie, the MSC). Socially optimal price in case of regulated monopoly is also known as allocative efficiency. In this case, the government set a price ceiling because of which monopolist demand curve will become horizontal.

Answer( 2)

Social optimal price is the price in which the profit will be maximum. This is the most favorable supply of resources in the society as it considers both internal and external factors. The noted fact is that, in this output, monopoly can gain allocative efficiency and prevent the dead weight loss.

Fair return price is a better-controlled price which allows the monopoly to levy a price that is equal to the average total cost and that include the profit also.

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