Definition of Marginal-cost Pricing
When you make the price of an item the same, or a bit higher, than the amount it takes to make it.
Description of Marginal-cost Pricing
This is usually used when a business has a little bit of non-utilized production left that they wanted to take advantage of or they just can’t sell at a great price. In both of these scenarios, they want a steady, ascending revenue for a period of time because prices as low as these ones can’t be used to cover the typical business expenses.
Advantages of Marginal-cost Pricing
It helps increase profits since it engages those who are price conscious. They help give a business a bit of ascending revenue. It’s also a nice way to enter a market.
Disadvantages of Marginal-cost Pricing
This is not a great long-term strategy because your company won’t be able to cover your typical costs. Also, since you’ll be looking at your minimum, you won’t be taking into consideration the minimum price of the market, so in some cases, you won’t be making the most that you could be. If you’ll be moving your prices around constantly, you’ll also lose those who are price conscious.