Write short notes on Marginal cost pricing.
Answers
Answer:Marginal cost pricing is the practice of setting the price of a product at or slightly above the variable cost to produce it. This approach typically relates to short-term price setting situations. This situation usually arises in one of two circumstances:
A company has a small amount of remaining unused production capacity available that it wishes to use; or
A company is unable to sell at a higher price
The first scenario is one in which a company is more likely to be financially healthy - it simply wishes to maximize its profitability with a few more unit sales. The second scenario is one of desperation, where a company can achieve sales by no other means. In either case, the sales are intended to be on an incremental basis; they are not intended to be a long-term pricing strategy, since prices set this low cannot be expected to offset the fixed costs of a business.
The variable cost of a product is usually only the direct materials required to build it. Direct labor is rarely completely variable, since a minimum number of people are required to crew a production line, irrespective of the number of units produced.
Explanation:
Answer:
Marginal cost :
Explanation:
marginal cost is the increase in total cost resulting from one unit increase in output. In short it may be called incremental cost. Since a change in total is caused only by a change in total variable cost. Marginal cost may also be designed at the increase to total variable cost resulting from one unit increase in output . Thus, Marginal cost was nothing to do with fixed costs.
MC=^TC / ^q
or , MC=TC n - TC n-1
Here, MC = Marginal Cost
TC a = Total cost of n units
TC n-1 = Total cost of n-1 unit
Suppose the total cost of 3 units of a commodity is Rs. 60 and now the local cost of 4 units become Rs. 72,then the Marginal cost will be Rs.12 (72-60).
Like other per unit cost curves marginal cost curve also has an U-shape.This follow directly from the T V C and TC curves rise at a decline rate . Their rate of increase being the Marginal cost , MC curve falls, when the rate of increase of Tc and T V C stop falling , M c turns upwards . MC reaches its minimum point at a lower level for output than do the A V C and A T C. More over it intersects them both at their respective minimum point.