When firms price their products by adding a percentage markup to their average costs of production, this is called
A)average cost pricing.
B)rounding up.
C)break-even pricing.
D)cost-plus pricing.

Question

Quizplus · Accepted Answer

This is an example of cost-plus pricing, where the price is determined by adding a percentage markup to the average cost of production. This allows the firm to ensure that they are covering their costs while also factoring in a profit margin. Average cost pricing is more focused on setting the price at the level of average cost, while rounding up is not a formal pricing strategy. Break-even pricing involves setting the price to cover only the costs of production, without factoring in a profit margin.

When Firms Price Their Products by Adding a Percentage Markup