Submitted to the Foculty of Groduqte Studies ond Reseorch in portiol ...

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of stoting, o príori, whot degree of competition is .required to
ochieve sotisfoctory performonce, or, conversely, h/hot degree of
morket power moy dt times be desiroble for the some purpose.
The cost principle. - fn Scondinovio. problems of this
type ore overcome by the use of o more tongible criterion. It
is embodied in the so-colled cost principle. Bosicolly, this
implies thot o Inormol' profit mqrgin or percentqge return on
invested copitot is odded to unit costs to orrive ot the product
price. It hos for dêcqdes been the moin guideline in Donish price
reguiotion, ond monopoly control too, os is demonstroted in q
lqter chopter, where the concept is defined more precisely.
Although long estoblished in the business world, fuIl-cost
pricing wqs unknown in economic onolysis until it wos introduced
by R. L. HqtI ond C. J. Hitch (Oxford Economic popcrs, f939).
There ore severol vqrionts of it, oftên referred to in the
Iiteroturé os 'cost-boaed rul€s of thumbr. The outhors just
mentioned found vorious reosons v,/hy thè method is so widespreod
omong businessmen, For ohe, it is q v,/qy of coping with uncertointy.
In foct, the economic environment within which firms operote
is constantly chonging: populotíon, tostes, technology, govern-
ment, ond so on. As o result. demond functions qre seldom
stoble enough to settle down into o losting pnice-quontity
equilibrium, ì¡/hen these uncertointies or€ coupled with the
difficulties of predicting o1ígopolistic rivol reoctions. the