Which of the following is true of full-cost pricing?
A) Full-cost pricing uses the marginal cost of a product as its base.
B) Since fixed costs do not affect optimal price and quantity, full-cost pricing is error-prone.
C) Firms that use full-cost pricing are producing at the optimum level of output.
D) Full-cost pricing is based on the markup of price over average variable cost.
E) Full-cost pricing takes into account the price elasticity of demand for the product.

Question

Quizplus · Accepted Answer

Full-cost pricing uses both fixed and variable costs to determine the price of a product. However, fixed costs do not affect the optimal price and quantity as they are sunk costs that cannot be recovered through changes in output. Therefore, using full-cost pricing can lead to errors in setting the optimal price and quantity.

Which of the Following Is True of Full-Cost Pricing