Theory of exchange (popularly known as price theory)

Theory of exchange (popularly known as price theory) explains how the prices are determined under different market conditions? How price discrimination is made? How and to what extent advertisement can be helpful in unceasing sales of a firm in a market. Thus price policy can be helpful in determining price policy of the firm and the theories of price and production together. Marginality principle, mark up pricing, price discrimination- are some of the important factors to be considered. Similarly, strategies of oligopoly market like game theory give strategic idea to managers.
Theory of Profit: Main objective of every business and industrial enterprise is to earn maximum profit. An important point of consideration in this regard is the element of uncertainty about profit. Profit is always uncertain because of following factors- fluctuation in demand of the product, wide change in prices of factors of production, changes in the number of competitors and the degree of competition, price behavior under changing conditions, changes in technology and methods of production. Besides, social, political and environmental conditions and government policies keep on changing. Therefore, profit, planning and profit management are necessary for improving profit- earning efficiency of the firm. Profit management necessitates that most efficient technique should be used for predicting future. The possibilities of risk should be minimized as far as possible.