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) *

Famous quotes containing the words average and/or cost:

    Three million of such stones would be needed before the work was done. Three million stones of an average weight of 5,000 pounds, every stone cut precisely to fit into its destined place in the great pyramid. From the quarries they pulled the stones across the desert to the banks of the Nile. Never in the history of the world had so great a task been performed. Their faith gave them strength, and their joy gave them song.
    William Faulkner (1897–1962)

    To call a posit a posit is not to patronize it. A posit can be unavoidable except at the cost of other no less artificial expedients. Everything to which we concede existence is a posit from the standpoint of a description of the theory-building process, and simultaneously real from the standpoint of the theory that is being built.
    Willard Van Orman Quine (b. 1908)