What pricing strategy involves adding a reasonable markup to the average cost?

The appropriate pricing strategy that involves adding a reasonable markup to the average cost is identified as cost-plus pricing. This method entails calculating the total cost of producing a product or service and then adding a specific percentage or fixed amount to establish the selling price.

Cost-plus pricing is advantageous for businesses because it ensures that all production costs are covered while guaranteeing a profit margin. It is especially useful in scenarios where businesses have consistent cost structures and wish to maintain simplicity in their pricing methods. By using this strategy, companies can easily adjust prices based on changes in costs without requiring extensive market analysis or consumer research, which is a hallmark of more complex pricing strategies.

In contrast, average-cost pricing focuses on using the average costs of production for setting prices, but it does not specifically incorporate a markup to ensure profitability. Dynamic pricing involves setting flexible prices based on current market demands, and value-based pricing relies on the perceived value of the product to the customer rather than the actual costs incurred by the company. Hence, cost-plus pricing stands out as the clear choice for this particular pricing strategy.