Average-Cost Pricing

question 156

Multiple Choice

Average-cost pricing

• A) always results in a profit that is less than what was expected.
• B) will work out as expected when the firm's actual average fixed cost per unit is what was estimated when prices were set.
• C) sets the price at the point where average fixed cost is equal to average variable cost.
• D) ignores variable costs.
• E) is the only way to ensure that the firm will set a profitable price.

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Definitions:

Break-even Point

The point at which total cost and total revenue are equal, resulting in no net loss or gain for a business.

Unit Price

The cost of a single unit of product or measurement, allowing for easy price comparison between different sizes or quantities of the same item.

Unit Variable Cost

The expense incurred from manufacturing an extra unit of a product.

Break-even Chart

A graphical representation that displays the point at which total costs and total revenues are equal, indicating no net loss or gain.