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marginal-cost pricing

   Also found in: Dictionary/thesaurus, Financial, Wikipedia 0.01 sec.

marginal-cost pricing

In economics, the practice of setting a product's price equal to the additional (marginal) cost of producing one more unit of output. The producer charges an amount equal to the cost of the additional economic resources. The policy is used to maintain a low selling price or to keep a business operating during a period of poor sales. Because fixed costs such as rent and building maintenance must be paid whether a company produces or not, a firm experiencing temporary difficulties may decide to remain in production and sell the product at marginal cost, since its losses will be no greater than if it ceased production.
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First-best efficiency occurs when rates equal marginal cost, but marginal-cost pricing is untenable for postal services because it would produce insufficient revenue to cover institutional costs.
Going postal: regulatory reform for the digital age by Montanye, James A. / Independent Review
When prices are set at marginal cost, telecommunications firms that need to make substantial fixed and sunk investments will not be able to cover the total costs of a project, with the result that departures from marginal-cost pricing will be optimal.
Dynamic competition in telecommunications: implications for ... by Quigley, Neil / C.D. Howe Institute Commentary
The low-price strategy makes sense on two levels: First, it approximates marginal-cost pricing, since software, once written, costs very little for each additional copy.
Creative insecurity: the complicated truth behind the rise of ... by Postrel, Virginia I. / Reason
 
 
 
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