With which of the following pricing approaches is a product's price equal to its marginal cost?

Correct option is C

Correct Answer:(C) Marginal cost pricing

Marginal cost pricing is a pricing strategy where the price of a product is set equal to its marginal cost—the cost of producing one additional unit of the product. This approach is often used in cases of perfect competition or during periods of excess capacity when firms aim to cover variable costs and attract more customers.

$$\text{Price}=\text{Marginal Cost}$$

It is commonly used in industries such as utilities, airlines, and manufacturing where businesses operate close to their cost levels.

• Marginal Cost: The cost incurred in producing one more unit of output.
• Purpose of Marginal Cost Pricing: Used to maximize production efficiency and clear excess inventory.
• Application: Common in price-sensitive markets, public services, and competitive industries.
• Example: If the marginal cost of producing an additional smartphone is $200, under marginal cost pricing, the selling price will also be $200.

• Mark-up pricing:  Involves adding a fixed percentage to the cost price. Formula:$$\text{Selling Price}=\text{Cost Price}+\text{Mark-up}$$Common in retail and manufacturing industries.
• Factor pricing:  Related to input cost determination, such as wages for labor and rent for land, not product pricing.
• Price discrimination: Charging different prices for the same product in different markets (e.g., airline ticket pricing).