A primary reason that a firm would use average-cost pricing is that it helps in making decisions about production output and purchasing during short run period.
What is average cost?
Average cost refers to the cost per unit of goods produced or manufactured in production, which comprises fixed costs, which are important for production, that does not change no matter the output.
Average cost represents the average amount of money spent to produce a product. However, average-cost pricing works well if the firm actually sells the quantity it used to calculate the average-cost price.
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