The big problem with average-cost pricing is that:
A) fixed costs are hard to estimate.
B) it ignores the firm's demand curve.
C) it doesn't consider the effect of variable costs.
D) there is no way to include a desired profit per unit.
E) None of these alternatives is correct.

Question

Quizplus · Accepted Answer

Average-cost pricing sets prices based on the average cost per unit of production, without taking into account the firm's demand curve or the prices its competitors are charging. This can lead to setting prices too high, which can lead to lower sales and lost market share, or setting prices too low, which can lead to missed profits. Therefore, it ignores the firm's demand curve.

The Big Problem with Average-Cost Pricing Is That