marginal-cost pricing


marginal-cost pricing

In economics, the practice of setting a product's price equal to the additional (marginal) cost of producing one more unit of output. The producer charges an amount equal to the cost of the additional economic resources. The policy is used to maintain a low selling price or to keep a business operating during a period of poor sales. Because fixed costs such as rent and building maintenance must be paid whether a company produces or not, a firm experiencing temporary difficulties may decide to remain in production and sell the product at marginal cost, since its losses will be no greater than if it ceased production.

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