MICROECONOMIC PRICING MODEL

A model by which prices are determined within a market for a given product or service. Prices are set according to the balance of supply and demand in a market. Generally speaking, profit incentives look like an invisible hand that leads competing participants to an equilibrium price.

In this model, the demand curve is settled by consumers who aim to maximize their utility, given their budget. Companies set the supply curve in its attempt to maximize their earnings, given the production costs and demand level for their goods. In order to maximize income, the pricing model is in accordance with producing a certain quantity of goods by which total revenue subtracted by total costs is at its highest.

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