With the prohibitive price, the economic price is determined at which a seller does not sell any goods. The quantity requested corresponds to the value zero. Goods that are offered at this price do not make consumers willing to pay.
This lesson covers the prohibitive price. You will find out what the prohibitive price is and how it is determined. We’ll show you how the prohibitive price differs from the saturation level and what the significance of the prohibitive price is. In order to deepen your knowledge, you can answer the exercise questions following this text.
- Synonym: maximum price
- English: prohibitive price
What is the relevance of the prohibitive price?
According to beautyphoon, the prohibitive price is a factor that has great relevance in corporate cost theory. Since a company does not sell any goods at this price, the highest sales price must be at least slightly below the prohibitive price. The prohibitive price intersects the y-axis on the price-sales function.
A boat manufacturer offers a yacht for sale. He set the price at € 8,000,000. The offer is perceived by anyone. The demand of the consumers is zero. The price of € 8,000,000 is a prohibitive price.
The determination of the prohibitive price
To calculate the prohibitive price, the following factors must be given:
- Price-response function
- no consumer demand
The value zero is entered on the y-axis of the price- sales function.
The price-sales function is e.g. B.:
The following formula is used to determine the prohibitive price:
The formula is solved for p:
The prohibitive price for the selected example is € 15.75.
Differentiation between prohibitive price and saturation amount
The saturation amount describes the point at which the demand is satisfied even though the price for the goods in demand is € 0.00. Like the prohibitive price, the saturation quantity can be read off the price-sales function. If an assigned price corresponds to the value of 0.00 €, the saturation amount shows the amount of a good that is in demand. For this purpose, a price of € 0.00 is entered on the x-axis of the price-sales function.