Price and cost
Published on: Mar 4, 2016
Transcripts - Price and cost
Submitted to Prof. Asher Ilyas
The price is the amount customers pay for a product. When you pay a price for something, the price
represents the value of what you have to give up in order acquiring a product or service.
If an MP3 player is priced at $60, it means I must give up that amount of money to acquire that product.
The cost is the amount spent by a business making the product. Cost is often split into two elements: the
variable cost (costs that vary in proportion to the quantity being made) and fixed costs (costs that are
required for production to take place but which do not vary as output varies).
Cost refers to the amount paid to the produce a good or service. The cost represents the sum of the value
of the inputs in production – land, labor, capital and enterprise.
The image below shows how the price we pay is made up for a chocolate bar. This chocolate bar is priced
at $1.30. The segments show an estimate of how this price might be arrived at.
The raw materials will include the cocoa, sugar, milk, honey, hazelnuts, flavouring and colour that are
used to make the chocolate bar.
The capital will include all the buildings and factories that make up the Cadbury's business, the
machinery, equipment used in the manufacture of the bar as well as all the vehicles and so on involved in
the distribution of the finished product and the offices and administration buildings that support the
Labour includes not only those who are involved directly in the making of the bars but all the sales staff,
administration staff, management, marketing teams and so on that are employed by Cadbury.
The profit is the reward for enterprise. It is the amount left over when all the costs have been paid.
These represent the costs of production.
The price of this chocolate bar is the amount of money that I have to give up to buy. In this example, this
is $1.30 as represented by the coins below.