How are prices fixed by a seller or producer?

The sellers fix the price of their commodities on the basis of their cost of production and the demand for the commodity in the market. The cost of production is an important component determining the price of the commodity. It includes both production and selling cost, i.e. cost of advertising, cost of transportation and selling the commodity. Thus it determines the cost of production to a large extent. When the cost of production is high, the price of the commodities will be higher and vice-versa. The prices are also fixed on the basis of the demand for the commodity in the market. Demand is the number of commodities that the consumers are ready to purchase at different prices. This also determines the total quantity demanded by different consumers in the market. When the demand is high, the price would be set lower and vice-versa. Thus these are the main determinants of the price of commodities.