Which option best describes marginal cost pricing?

• A. Prices are determined by the competition with no cost consideration
• B. The price is set to cover full costs and profit
• C. The price is set to cover only marginal costs
• D. Prices are based on fixed costs only

Answer: (C)

Marginal cost pricing sets the price equal to the cost of producing one more unit. This means the price covers only the incremental, variable cost of that additional unit, ignoring fixed costs that don’t change with output. It’s especially relevant for short‑run decisions or when there’s spare capacity, because charging the marginal cost ensures each extra unit adds something to variable costs without incurring a loss on that unit, and helps make use of available capacity.

That’s why the best description is: the price is set to cover only marginal costs. It isn’t about pricing determined by competition with no cost consideration, nor about full cost plus profit, nor about fixed costs alone.