Average-cost pricing works well if the firm actually sells the quantity which was used in setting the price, but losses may result if actual sales are much higher than were expected-due to higher total variable costs.

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Average-cost pricing is based on setting the price for a product or service at a level that covers the average total cost of producing it. This strategy assumes that the firm will sell the expected quantity of units at the set price. However, if actual sales are much higher than expected, due to increased demand or other factors, the firm may face higher total variable costs, which could lead to lower profits or even losses. Therefore, average-cost pricing may not always be the best pricing strategy, especially in volatile or unpredictable markets.

Average-Cost Pricing Works Well If the Firm Actually Sells the Quantity