Price-response function

Also known as: Price-sales curve

The price-response function (PAF) is a mathematical model that describes the price of a good in relation to the quantity sold. With the PAF, the quantity is graphically plotted on the X-axis (abscissa) and the price on the Y-axis (ordinate).

Price-sales function in the homogeneous polypol

Im homogenen Polypol, also auf einem Markt mit vielen Anbietern und Nachfragern gleicher Güter, wird bei steigender abgesetzter Menge ein sinkender Preis angenommen und umgekehrt. Der Schnittpunkt von Angebots- und Demand curve denotes the equilibrium price.

Companies that offer their goods at the equilibrium price will sell a maximum of the equilibrium quantity. Up to this amount, the price-response function runs exactly at the level of the equilibrium price. If a company asks a price above the equilibrium price, the demand will be zero, since no customer is buying the good at that price. That means the price-sales function lies on the Y-axis.

If the price of a supplier is below the equilibrium price, then all customers will tend to buy from him and the price-response function corresponds to the demand curve.

Price-sales function in a monopoly

in the monopoly the provider can determine the selling price himself, the consumers can only decide whether they ask for the goods at this price or not. The profit maximum of a company is at Cournot's point, i.e. the most favorable combination of price and quantity for the monopolist.

Price-selling function in an oligopoly

Price-selling function in an oligopoly

the Oligopoly case, i.e. a market with several suppliers and buyers, is characterized by a simply broken price-sales function.

Price-sales function in the heterogeneous polypol

Price-response function in the heterogeneous polypole

In the case of a heterogeneous Polypols is it bent twice (Gutenberg function). This is an imperfect market in which goods are similar, but not exactly the same and therefore not easily substitutable. The competition between offers can also be restricted for reasons of space and time or due to customer loyalty.

The middle of the function represents a monopolistic area in which a provider can change the price without losing customers. Above a certain price they will still migrate, below the monopolistic area customers can be won.

Summary

  • Price sales function shows the amount of goods that can be sold for a certain price
  • The course of the price-response function is determined by the form of the market
  • in a homogeneous polypol, the price decreases as the demand increases
  • in Oligopoly ist die Funktion einfach geknickt
  • In heterogeneous Polypol, the PAF has a monopoly area
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