Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm's marginal cost and average cost are about the same and when it is difficult to estimate the product's demand curve.

Question

Quizplus · Accepted Answer

Cost-plus pricing involves adding a markup to the firm's cost to determine the product's price. This method may be appropriate when it is challenging to estimate the demand curve, and when the firm's marginal cost is similar to its average cost. In such cases, the firm can use cost-plus pricing to ensure that it covers its costs and earns a reasonable profit. However, when the demand curve is known, and marginal cost differs significantly from average cost, other pricing strategies may be more appropriate.

Economists Believe That Cost-Plus Pricing May Be the Best Way