Chapter 8, Problem 1Q

What are the two types of pricing environments for sales to external parties?

To determine

Product price: The price at which the product is sold is referred to as product price.

Factors that affect the product price decisions:

• Pricing objectives
• Pricing environment
• Demand
• Cost considerations

To mention: The two kinds of pricing environments which affect the product price

Explanation of Solution

The following are the two kinds of pricing environments which affect the product price:

• The product price is not set by the company, but is set out of the supply and demand forces competing in the market. This is the first kind of pricing environment.
• The product price is set by the company under the following situations:
• When the product is specially designed for the customer
• When the product can be manufactured by only some companies, ruling out the competition
• When the product is distinct from others

Conclusion

Thus, the two types of pricing environments are (1) product set by the market, and (2) product set by the company.