OPERATING AND FINANCIAL EQUILIBRIUM-A PERFECT SOLUTION FOR PRICE OUTPUT DETERMINATION IRRESPECTIVE OF COMPETITION

Abstract

The optimization of profits and profitability of a product or firm depends on the perfectness in arriving at the equilibrium among the costs, price and volume of product(s) of a business. As the volume and price of product are inter related and they are commonly decided in correlation. The profit and profitability depends on costs and cost implications apart from the price and the volume. The price and costs may not be perfect constants and subject to changes in accordance with changes in internal and external environments. The basic and most important decision of every organization is the planning for profits and profitability. The determinants of profits are the costs price and the volume. Hence, the core factors in planning for profits are a decision on price and the volume inconsideration of costs and cost functions in the light of economic environment implications. Therefore, perfection in planning for profits is subject to finding a perfect equilibrium among the three factors, i.e. the price, costs and the volume in accordance with the economic environment implications. 

Theoretically the economic analysis explained the point of equilibrium as MR=MC i.e. the point or volume of output and the price at which the additional (marginal/variable cost) costs are exactly equal with the marginal revenues (marginal price) and the MC curve should intersect the MR curve from below subject to the condition that there is no change in fixed costs and the investment outlay. In practice the BEA is serving the purpose.  Due to the compulsion of assumptions, it is suffering from inflexibility and imperfection. Though the BEA featured of ensuring direct relation among the costs prices and volume, it is not in a position to give perfect answers to the queries of “what if” of economic environmental implications. In the light of this it is felt that addition of the feature of flexibility enable to answer the queries of ‘what if’ and it became the most reliable and simple analysis and a perfect profit planning technique. This research is projected in this direction.