If marginal costs differ quite substantially from average total costs, then using a cost-plus pricing schedule will not lead to the profit-maximizing price.

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Cost-plus pricing involves adding a markup to the average total cost to determine the selling price. However, if the marginal costs differ significantly from the average total costs, the cost-plus pricing method may not lead to the profit-maximizing price because it does not take into account the additional costs incurred to produce each additional unit, which can significantly impact profitability. Thus, alternative pricing strategies that consider marginal costs and revenue may be more appropriate in such cases for determining the optimal price.

If Marginal Costs Differ Quite Substantially from Average Total Costs