Average-cost pricing
A) will result in disappointing profits when the firm sells more than it expected to sell.
B) will never lead to a higher than expected profit.
C) takes the demand curve into account when calculating a price.
D) is most likely to result in the expected level of profit when demand is inelastic within the range of possible prices.
E) All of the above are true.

Question

Quizplus · Accepted Answer

Average-cost pricing takes into account the firm's costs when determining the price, but also considers the demand elasticity within that range of prices. When demand is inelastic, the firm can charge a higher price and still sell the expected quantity, resulting in the expected level of profit. However, if demand is elastic, the firm may need to lower its price to sell the expected quantity, resulting in lower than expected profits.

Average-Cost Pricing