- 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.
* * *in economics, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labour. Businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price is $2.00, the firm selling the item might wish to lower the price to $1.10 if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.In the mid-20th century, proponents of the ideal of perfect competition—a scenario in which firms produce nearly identical products and charge the same price—favoured the efficiency inherent in the concept of marginal-cost pricing. Economists such as Ronald Coase (Coase, Ronald), however, upheld the market's ability to determine prices. They supported the way in which market pricing signals information about the goods being sold to buyers and sellers, and they observed that sellers who were required to price at marginal cost would risk failing to cover their fixed costs.
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marginal cost pricing — The setting of product selling prices based on the charging of marginal costs only to the product. The approach is only likely to be used in exceptional circumstances, such as when competition is intensive, as its application to the complete… … Accounting dictionary
marginal cost pricing — The setting of product selling prices based on the charging of marginal costs only to the product. The approach is only likely to be used in exceptional circumstances, such as when competition is intensive, as its application to the complete… … Big dictionary of business and management
marginal cost pricing — /ˌmɑ:dʒɪn(ə)l kɒst ˌpraɪsɪŋ/ noun a pricing method that involves fixing a price per unit that covers marginal costs and makes an acceptable contribution to fixed costs … Marketing dictionary in english
marginal-cost transfer prices — Transfer prices set by marginal cost pricing When there is no market for the goods and services that are bought and sold between the divisions of an organization, the transfer price should be the marginal cost, which is normally assumed to be… … Big dictionary of business and management
full cost pricing — A method of setting the selling prices of a product or service that ensures the price is based on all the costs likely to be incurred in its supply. Compare: cost plus pricing, marginal cost pricing … Accounting dictionary
full cost pricing — An approach to setting selling prices that attempts to ensure that the price of a good or service is based on all the costs incurred in its supply, including overheads It usually involves an absorption approach to the costing of units. Compare… … Big dictionary of business and management
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cost — costless, adj. costlessness, n. /kawst, kost/, n., v., cost or, for 11 13, costed, costing. n. 1. the price paid to acquire, produce, accomplish, or maintain anything: the high cost of a good meal. 2. an outlay or expenditure of money, time,… … Universalium
marginal — marginality, n. marginally, adv. /mahr jeuh nl/, adj. 1. pertaining to a margin. 2. situated on the border or edge. 3. at the outer or lower limits; minimal for requirements; almost insufficient: marginal subsistence; marginal ability. 4. written … Universalium