Which of the following statements regarding the average-cost pricing rule is incorrect? A

Marketing Dec 28, 2020

Which of the following statements regarding the average-cost pricing rule is incorrect?

A. The firm earns a normal profit.

B. It is efficient.

C. More output is produced than if the firm maximized profit.

D. It sets price equal to the average total cost.

Expert Solution

The incorrect statement regarding the average-cost pricing rule is B. It is efficient.

The average-cost pricing rule is a pricing strategy of firms in which the price is set equal to the average total cost. Because of this, the firm will produce more output than the level where marginal cost equals marginal revenue and earn zero economic profit. However, this is not an efficient output level. The socially efficient output level occurs when the price is set equal to the marginal cost, not the average cost.

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