Marginal Cost Pricing

Correct pricing and output decisions require incremental analysis. That is, a firm should change the price of a product, introduce a new product, accept new orders and so on if the incremental revenue exceeds incremental costs. Incremental/marginal/direct cost pricing implies that price of a product is based on incremental cost of production.

When excess capacity exists in the short run, overhead or fixed costs are irrelevant in determining whether or not a firm should undertake a particular course of action. Since fixed or overhead costs have already been covered, any action on the part of the firm that increases revenues more than costs leads to an increase in total profit of the firm and should be undertaken. Long run effects should be considered if the firm anticipates the demand to increase in future if it decides to introduce a new product or lower prices of existing product in therefore run to use idle capacity.

In case firm is operating at full capacity, then a lower price to increase sales or introduce a new product will increase all costs, including those for plant and equipment. Full cost and incremental cost pricing in such a case result in same results. Thus, a product can be produced profitably if its price exceeds incremental costs of supplying the product. 

Managerial Economics Tutoring - Assignment Help

Our online managerial economics experts are here for your help. Expertsmind.com online assignment help-homework help brings you high grade in your courses and examination, We at Expertsmind.com offers managerial economics assignment help, managerial economics homework help and projects help. We offer complete package of managerial economics online tutoring for 24x7 hours.

ExpertsMind.com - Marginal Cost Pricing Assignment Help, Marginal Cost Pricing Homework Help, Marginal Cost Pricing Assignment Tutors, Marginal Cost Pricing Solutions, Marginal Cost Pricing Answers, Pricing Practices Assignment Tutors