The differences undermines economists way of pricing. Another aspect apart from cost per product-that the social class of the consumers is incorporated in pricing.
The fixed costs are constant for a production period, say annually. The variable cost, which varies with number of units produced are distorted to reflect high amounts, which are intended to be high mark-ups for the vendor.
Cost of selling is very high, taking the case of perfume. This means that the perfume passes through very many stages, which will prompt each person to add some mark-up in order to get profit, hence raising the amount of$6 to say $40.this triggers the price up.
The type of market for each case. Vodka case is perfect competition, while for the case of perfume is monopoly. On the other hand, the case of jeans and alligator /animal shirts is a monopolistic competition.
X-axis represents quantity of produce by the monopolist, while Y-axis represents price per unit of product. The first slanting line from marginal cost line is the marginal revenue, while the second slanting line is the demand. The monopolist produces less quantity at vertical line 1 instead of vertical line 2 to save cost. He sells the produce at a higher price than perfect competitive market seller would have sold to make supernormal profits
Marginal cost
Perfect competition is whereby there are many buyers and sellers, where neither of the two has control over the market price. In other words, they are price takers. Any one who dares to sell his goods and services at a price different from the on going market price is edged out. This type of market is efficient as no one has control over the market. For monopolistic market structure, the market consists of many buyers and sellers who trade over a range of products rather than a single market price. The sellers differentiate their products by using consumer market segments, in addition to price. Thus this market is efficient as well as dynamic. For oligopoly, the market consists of few sellers who are highly sensitive to each other’s pricing and marketing strategies. The market is not efficient because it is difficult for new sellers to enter the market, though static as sellers consider competitor’s strategies and moves. Lastly for monopoly, a single firm produces a product without close substitutes, as well as significant barriers being in place to prevent other firms from entering the market. Thus this market is not dynamic, and is inefficient since there are barriers of entry to new firms.
