Final answer:
The two pricing options in value creation are Penetration Pricing and Skimming Pricing. They are vital in deciding the price a firm charges for its products, considering the profit-maximizing quantity, cost structures, and market competition.
Step-by-step explanation:
Options in Value Creation Pricing
In value creation, the two pricing options are a. Penetration Pricing and Skimming Pricing. Penetration pricing is a strategy where the price is set lower than the competitors' prices to gain market share quickly. On the other hand, skimming pricing involves setting a high price initially when a product is new and unique, then gradually lowering the price over time. Choosing the right pricing strategy is essential for a firm operating in a monopolistic competition market structure to maximize profits, and it typically involves analyzing both cost structures and perceived demand curves.
For example, Authentic Chinese Pizza decided to charge $16 per pizza for a quantity of 40 based on their profit-maximizing quantity of output. This price was not arbitrary but was set by combining the marginal cost of producing the pizzas with the desired profit margin, informed by the unique market structure and the firm's perceived demand curve.
Understanding the firm's cost structure from a long-run perspective, by breaking down fixed and variable costs, is also essential in informing pricing decisions, which ultimately affect the supply curve and profits in the long term.