Marginal-cost pricing

Marginal cost is the cost of producing one additional unit of an industry's output, other things remaining the same. If the price of all units sold is set equal to the marginal cost, the customer will pay an amount that adequately reflects the cost to society of producing the product.

Marginal cost pricing is the practice of setting the price of a product at or slightly above the variable cost to produce it. In economics, it is the practice of setting the price of a product to equal the extra cost of producing an extra unit of output.

By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labor.

Economists have espoused that pricing goods and services at marginal cost is efficient both allocatively and productively.

Advantages of marginal-cost pricing
*Simple pricing method and easy to implement
*Use marginal cost pricing to gain entry into a market
*Help to smooth fluctuations in demand.
*Good way to remain in business and price-competitive in a time of difficult trading
Marginal-cost pricing