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Comment by bko | Hacker News Reader

Cost definitely impacts the price. In a perfect competition, the price would be the marginal cost to produce an additional unit. This would result in maximizing the revenue. Even in a monopoly, the price is where the marginal cost and marginal revenue intersect, but the price charged would be the average revenue. In both cases cost impact the price charged.

There are other things that affect price, including consumer demand. But cost is absolutely a factor. Saying "the cost is what people are willing to pay" is a tautology and not very useful.

http://www.sanandres.esc.edu.ar/secondary/economics%20packs/...

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Except there is no perfect competition, and none for Arizona Iced Tea: only Arizona sells it, no one else.

They are, of course, engaged in competition with Pepsi, and also with water, food, and rent. If they were to raise their price, some number of people may decide they don't need any Arizona Iced Tea.

Right. The two extremes are perfect competition and monopoly. The truth lies somewhere between the two. In both cases supplier costs affect price

No. At monopoly, cost has zero effect on price.

Except, the cost of a substitute might, where the substitute participates in a real or regulated market. So, price under a rail monopoly may be bounded by the cost of trucking.

> No. At monopoly, cost has zero effect on price.

Only if that monopoly is actively being substantially abused.

If you're only slightly taking advantage of a monopoly, then your price is mostly tied to normal supply and demand rules.

Price might be depressed below "whatever the market will bear" by trying to be a less attractive target to potential competition, or to fend off anti-trust enforcement. But those are not driven by your own costs.

If you're fending off antitrust enforcement, then you're likely trying to price things as if you had no monopoly.

Which means you base the price off of cost and demand, like a normal product.

Then, you are in a regulated market, and are not a monopoly, but a public utility.

Or you're just trying to not be a target. Which applies to both potential government involvement and potentially making your customers angry.

Please see the link I attached in my first post. Again, what I'm saying is pretty basic well accepted economics.

Think about it in the extreme. Suppose the cost to produce the product goes up above the current price. Obviously the price will have to go up.

Or imagine the cost goes to nothing. Then depending on the elasticity of demand, you might make more money selling more for a lower price.

Stop trying to reinvent economics.

http://www.sanandres.esc.edu.ar/secondary/economics%20packs/...

Individually modeling any single actor in a market (whether a monopolist or not) accurately is tough, because they can make decisions for reasons other than profit maximization. As your source mentions:

http://www.sanandres.esc.edu.ar/secondary/economics%20packs/...

Economic models are more descriptive of behavior than they are prescriptive of behavior. It is possible that a factor in a model is not considered by the participants. Vanishingly few, if any, companies are going to be drawing profit maximization curves to make pricing decisions. Most of them don't have the information to draw it even if they wanted to. For most companies that do follow that model, it's by an accident of the invisible hand, not because they made a decision that way.

There is no perfect market for "Arizona ice tea". Arizona Ice tea is available in most locations, has a consistent flavor, and is easy to access.

The customer isn't deciding which tea to buy based on price, they are deciding whether it's worth buying an Arizona ice tea at the current moment of time. Changing the price of Arizona ice tea will influence this decision, but so will marketing, and shelf placement.

Cost sets a floor on the sell price, nothing more.

I gave a clear explanation of pretty mainstream economics that no economists would disagree with. But okay.

Even this isn't true. Lots of products can and are sold at a loss for various reasons.

Some examples: Various video game consoles, grocery store loss leaders, Black Friday doorbuster deals, inventory liquidation.

i remember learning this in college. It's absolutely false now though. Late-stage capitalism has different ideas as those basic graphs don't take into account any amount of game theory. There's perfect competition in coffee but marginal cost the the end user does not anywhere approach marginal cost.

> Late-stage capitalism has different ideas as those basic graphs don't take into account any amount of game theory.

This has nothing to do with late stage capitalism. The parent post misunderstands cost to the producer and the price charged for the end product.

> There's perfect competition in coffee but marginal cost the the end user does not anywhere approach marginal cost.

This is 100% bullshit if you actually care about coffee.

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