Average-Cost Pricing

question 94

Multiple Choice

Average-cost pricing:

• A) May be very profitable if actual sales are higher than expected.
• B) May lose money for the firm if actual sales are less than expected.
• C) Does not take demand into account in setting prices.
• D) Is simple in theory but often fails in practice.
• E) All of these alternatives are correct.

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Definitions:

Market Price

The prevailing rate at which a good or service is available for purchase or sale on the open market.

Profit-maximizing

The process by which a firm chooses its production level and pricing to achieve the highest possible profit given its cost structure and market demand.

Profit

The financial gain made in a transaction or operation, calculated as the difference between revenue and costs.

Marginal Cost Curve

A graphical representation showing how the cost of producing one more unit of a good varies as the quantity of output changes.