Cost of Products

COST OF PRODUCTS 4

Costof Products

Costof Products

Product

Price

Estimated Cost

Difference

Running sneaker

$17

$14

$3

Welch’s fruit snacks

$3

$1

$2

Pepsi Can

$6

$4

$2

Raisin brown bread

$39

$30

$9

Brain rules text book

$11

$10

$1

Thenotable difference in the profit margin for each of the product is asa result of many combinations. The production cost of a given productis low, but then again the product has to reach the market where theconsumer can access the product. Getting the products from theproducer to the market place also undergoes a series of actions thatmakes its final price to be slightly high. There are merchants suchas wholesalers who get the products and sell them to retailers wholater on then have to sell to the end consumer. In that process, thewholesaler has to make a profit and so is the retailer. The Price ofthe commodity thus has to go higher to account for the profits thedifferent groups have to make.

Thedifference is also attributable to the difference in their priceelasticity of demand. This is because the demand for differentcommodities responds differently to the change in their price in themarket. Law of demand and supply guides the price of the differentcommodities because they have different costs and the elasticity ofprice (Mankiw,2014).Bread, for example, is always in demand among many consumers, anddespite change in price, people will always buy it. The textbook inthe above table is not always in demand as it is only a fewindividuals who might be interested in it.

Competitionalso leads to differences in price margins. Just that a given productis in demand does not also mean that it is the price has to increase.Good thing there are other chains selling similar products. Thus, onecannot raise a product basing on its demand alone. Competition alsohelps check the rate by which companies make products. In most cases,many consumers always prefer to go for a chain that sells theirproducts at a price lower than other nearby chains.

References

Mankiw,N. (2014). PrinciplesofMicroeconomics.New York: Cengage Learning