Average-cost pricing financial definition of average-cost pricing
See MARGINAL-COST PRICING, TWO-PART TARIFF.
- a pricing method that sets the PRICE of a product by adding a percentage profit mark-up to AVERAGE COST or unit total cost. This method is identical in most respects to FULL-COST PRICING; indeed, the terms are often used interchangeably.
- a pricing principle that argues for setting PRICES equal to the AVERAGE COST of production and distribution, so that prices cover both MARGINAL COSTS and FIXED OVERHEADS costs incurred through past investments. This involves the (sometimes arbitrary) apportionment of fixed (overhead) costs to individual units of output, though it does seek to recover in the price charged all the costs that would have been avoided by not producing the product.