"Average-cost pricing":
A) will result in losses if actual sales are much higher than expected.
B) might cause a firm to charge too high or too low a price-and reduce its profits.
C) usually assumes the firm will sell a larger quantity than the year before.
D) cannot be profitable-because it ignores demand.
E) All of these alternatives are correct.

Question

Quizplus · Accepted Answer

Average-cost pricing is a pricing strategy where a firm sets its price equal to the average cost of producing the product. However, this strategy might lead to the firm charging too high or too low a price, thus reducing its profits. For example, if the firm is producing at a low scale, the average cost will be high, and if the firm is producing at a high scale, the average cost will be low. Therefore, the firm might end up charging too high a price in the former case or too low a price in the latter case, reducing its profits. The other options are not correct because actual sales being higher than expected can increase profits, the strategy does not assume a larger quantity sold than the year before, and the strategy does not ignore demand as the price is based on the average cost of production.

"Average-Cost Pricing