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