The discussion in the previous chapter has already shown that pricing and investment criteria can only sensibly be determined as part of the same policy; they are analysed in separate chapters mainly for convenience and because traditionally they have been considered as different issues, despite the relationship which we have already traced. For revenue depends on the price which is charged, and so without a pricing policy an enterprise cannot estimate income. Similarly a firm wishing to follow a particular pricing policy, say marginal-cost pricing, needs to know the level of the relevant costs. These depend on the pattern of production determined by investment, while the optimum investment pattern itself depends on anticipated demand; however, demand is determined by the price charged, so the problem is a reiterative one in which the whole line of argument must be repeated until the pricing, investment and demand variables are mutually compatible.
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Suggestions for Further Reading
- E. W. CLEMENS, ‘Price Discrimination in Decreasing Cost Industries’, American Economic Review, vol. 31 (1941).Google Scholar
- R. H. COASE, ‘The Marginal Cost Controversy’, Economica, vol. 13 (1946).Google Scholar
- HAROLD HOTELLING, ‘The General Welfare in Relation to Problems of Taxation and of Railway and Utility Rates’, Econometrica, vol. 6 (1938).Google Scholar
- J. R. NELSON (ED.), Marginal Cost Pricing in Practice (Englewood Cliffs, N.J.: Prentice-Hall, 1964).Google Scholar
- RALPH TURVEY, Optimal Pricing and Investment in Electricity Supply (London: Allen & Unwin, 1968).Google Scholar
- RALPH TURVEY, Economic Analysis and Public Enterprises (London: Allen & Unwin, 1971).Google Scholar
- RALPH TURVEY (ED.), Public Enterprise (Harmondsworth: Penguin, 1968) especially articles by Nancy Ruggles and O. E. Williamson.Google Scholar