Final answer:
The pricing strategy where professionals add a standard markup to their costs is known as cost-plus pricing. It incorporates all costs and adds a profit margin, aiding in profit maximization and careful cost and revenue management.
Step-by-step explanation:
Lawyers, accountants, and other professionals typically price by adding a standard markup for profit to their costs. This pricing strategy is known as cost-plus pricing. Cost-plus pricing ensures that all the accounting costs are covered and a predetermined percentage of profit is included.
This method is distinct from other pricing strategies such as target costing, value pricing, break-even pricing, and penetration pricing, which are used in different contexts or with different pricing objectives. Average profit, which is also known as the profit margin, is calculated by dividing profit by the quantity of output produced.
It provides critical information to firms about their profitability at current market prices. It is key for businesses to understand their average total cost, including fixed and variable costs, to make informed decisions about production quantities and pricing strategies in order to maximize profits.