Why, in some cases, is marginal cost pricing (where companies will set prices below full costs) used?
A)To maximize profits
B)To cover direct costs plus make a contribution to overheads where supply outstrips demand
C)To beat competitors' pricing by a set marginal difference
D)To maximise the impact of price points

Question

Quizplus · Accepted Answer

Marginal cost pricing is used when supply outstrips demand and companies need to sell their products or services. In this case, companies will set prices below full costs to cover direct costs plus make a contribution to overheads. By doing so, they can continue to operate while waiting for demand to catch up. This strategy is also used to avoid inventory pileup and to keep production capacity fully utilized. Therefore, option B is the best choice as the other options do not align with the concept of marginal cost pricing.

Why, in Some Cases, Is Marginal Cost Pricing (Where Companies