Question

Describe in detail the importance of understanding how prices are determined for the inputs and outputs of a firm.

Answer 1

• The prices are important factors in determining Inputs and Outputs of the firm.
• Determined by the forces of demand and supply.
• Inputs determined by prices are labour,land, capital,Entrepreneurship etc.
• The corresponding prices are Rent,wages, interest, profit etc.
• They are the input factors of pricing in perfectly competitive markets.
• In perfectly competitive markets various input factors are paid for their values to get an Output product.
• The price of a factor is determined by its total demand and supply.
• The factors of production used by a firm is referred to as inputs what a firm produce is called an Output.
• A firm pays for the input.
• Input generate costs on the other hand generate ouput.