-
Under full cost pricing, price is determined
-
- by adding a margin to the average cost
- by comparing marginal cost and marginal revenue
- by adding normal profit to the marginal cost
- by the total cost of production
- by adding a margin to the average cost
Correct Option: A
Full cost pricing is a practice where the price of a product is calculated by a firm on the basis of its direct costs per unit of output plus a markup to cover overhead costs and profits. Having worked out what average total cost would be if the level of output expected for the next period of time were actually achieved, firms add to this a 'satisfactory' profit margin. This is known as 'full-cost' pricing. The price is equal to 'full' cost, including an acceptable profit.
