Average cost pricing

Average cost pricing

Average cost pricing is one of the ways government regulate a monopoly market. Monopolists tend to produce less than the optimal quantity pushing the prices up. Government may use "average cost pricing" as a tool to regulate prices monopolists may charge.

Average cost pricing forces monopolists to reduce price to where the firm's average total cost (ATC) intersects the market demand curve. The effect on the market would be:

- Increase production and decrease price.- Increase social welfare (efficient resource allocation).- Generate a normal profit for monopolist (Price = ATC) * [ [http://ideas.repec.org/a/aea/aecrev/v73y1983i2p189-93.html RePEc] "Marginal vs. Average Cost Pricing in the Presence of a Public Monopoly", "American Economic Review" v.73:189-93 (1983). ]

References

External links

* [http://www.12manage.com/description_average_cost_pricing.html Average Cost Pricing]
* [http://www.investopedia.com/terms/a/average_cost_pricing_rule.asp Average Cost Pricing Rule] on Investopedia
* [http://www.communitylab.org/?q=node/108 Chen, Yan] . " [http://www.si.umich.edu/~yanchen/papers/chen_srl.pdf An Experimental Study of the Serial and Average Cost Pricing Mechanisms] ," "Journal of Public Economics" (2003).
* [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=946177 "Marginal Cost versus Average Cost Pricing with Climatic Shocks in Senegal: A Dynamic Computable General Equilibrium Model Applied to Water"] by ANNE BRIAND, University of Rouen, November 2006
* [http://worthwhile.typepad.com/worthwhile_canadian_initi/2006/08/average_cost_pr.html Average cost pricing at Statistics Canada]


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