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What is Marginal Cost Pricing

In economics, marginal costs are assumed to be the cost to society of supplying another unit, The long run marginal cost is the full extra cost (both fixed and variable) of providing a further unit of output. Long run marginal cost equals average cost where there are constant returns to scale. But when there are increasing returns as the scale of the operation increases long run marginal cost is less than average cost and to recover total costs it would be necessary to set prices to recover long run marginal cost plus the difference between that and average cost. Short run marginal cost measures how variable costs change when output alters.

For government information in the recommendation of this report covering departments and agencies (other than trading funds), marginal cost pricing relates to additional costs over and above those of collecting the information for the original government policy purpose. It covers costs, including costs of staff time, reasonably incurred in locating and retrieving the information, and giving effect to the requesters preferred medium for the reply (which could be different to that in which the department currently held it); and also the disbursements directly incurred in communicating the information, eg printing, postage etc.

Crown Copyright. Material taken from HM-Treasury. Reproduced under the terms and conditions of the Click-Use Licence.

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Term created / updated 2007-03-16 16:02:51

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