Glaeser recalls a revelatory experience as a youngster when his mother sat him down and explained marginal cost pricing.

Suppose first that average cost pricing is practised - price is and quantity.

The other is direct cost pricing which is variable costs plus a percentage as markup.

"It makes all kinds of sense to do marginal cost pricing if the facilities are lying idle and you can hire faculty."

Average cost pricing is one of the ways government regulate a monopoly market.

Nationalized industries were directed to adopt marginal cost pricing.

Conversely, natural monopolies in the public sector which at times have been instructed to use marginal cost pricing will almost inevitably make losses.

It can be based on marginal cost pricing, which is economically efficient.

To reduce prices and increase output, regulators often use average cost pricing.

But no one who takes politics seriously believes that local officials who proposed true marginal cost pricing would survive the next election.