Final answer:
The starting price in a business, also known as the wholesale price, is determined by the cost of production plus the desired profit margin. For products like pizzas, this includes ingredients and operational costs plus a profit margin to set the final price.
Step-by-step explanation:
The starting price or the cost at which a business begins to sell its product is also known as the wholesale price. This price is set by calculating the firm's cost of production and adding the desired profit margin. The cost of production includes all expenses involved in making the product, such as raw materials, labor, and overheads. The desired profit is the amount the business aims to make over and above the production costs, which may vary based on industry standards and competitive dynamics.
In the context of setting prices for pizzas, the cost includes ingredients like dough, sauce, cheese, and pepperoni, as well as the operational costs like pizza ovens, shop rent, and worker wages. By combining these costs with the desired profit, the firm arrives at the price they want to charge for a pizza. This price determination is essential as it provides one point on the firm's supply curve, reflecting the relationship between the quantity supplied and the price.