Average Cost Pricing Rule

Filed Under »
Dictionary Says

Definition of 'Average Cost Pricing Rule'

A pricing strategy that regulators impose on certain businesses to limit the price they are able to charge consumers for its products/services equal to the costs necessary to create the product/service. This implies that businesses will set the unit price of a product relatively close to the average cost needed to produce it.
Investopedia Says

Investopedia explains 'Average Cost Pricing Rule'

This pricing method is often imposed on natural, or legal, monopolies. Certain industries (such as powerplants) benefit from monopolization, since large economies of scale can be achieved. 

However, allowing monopolies to be unregulated can produce economically harmful effects, such as price fixing. Since regulators usually allows the monopoly to charge a small price increase amount above of cost, average cost pricing looks to remedy this situation by allowing the monopoly to operate and earn a normal profit.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Monopoly

    A situation in ...
  2. Legal Monopoly

    A company that ...
  3. Economies Of Scale

    The increase in ...
  4. Price Fixing

    Establishing the ...
  5. Value-Based Pricing

    The setting of a ...
  6. Pricing Power

    An economic term ...
  7. Microeconomic Pricing Model

    A model of the ...
  8. Prisoner's Dilemma

    A paradox in ...
  9. Economic Profit (Or Loss)

    The difference ...
  10. Minimum Wage

    The minimum ...

Articles Of Interest

  1. What Are Economies Of Scale?

    Is bigger always better? Read up on the important and often misunderstood concept of economies of scale.
  2. Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  3. Antitrust Defined

    Check out the history and reasons behind antitrust laws, as well as the arguments over them.
  4. Is Growth Always A Good Thing?

    Getting big quickly looks good, but companies can get into trouble when they do it too fast. Find out how to spot this trouble.
  5. The Impact Unpaid Internships Have On The Labor Market

    The dramatic increase in unpaid internships has given rise to favorable and unfavorable arguments based on their impact on the students/interns, the labor force and the economy as a whole.
  6. A Primer On Inflation

    Inflation has a negative connotation, but is it all bad or does it offer some tangible benefits?
  7. The Uncertainty Of Economics: Exploring The Dismal Science

    Learning about the study of economics can help you understand why you face contradictions in the market.
  8. Understanding Interest Rates, Inflation And The Bond Market

    Get to know the relationships that determine a bond's price and its payout.
  9. A Silver Primer

    Find out what affects the price of silver, the types of investments that can be made and the methods in which it is traded.
  10. The Greatest Currency Trades Ever Made

    These speculators took big positions - and scored huge profits - in the currency market.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center