The policy of setting the price of a good or service equal to the marginal cost of producing it. The equality of marginal cost to price is one of the conditions that describe economic efficiency. If the good or service is produced under conditions of increasing returns to scale, however, marginal cost will be below average cost and the firm will make a loss. Paying for this loss requires a subsidy, either from the state or via cross-subsidization from some profitable activity conducted by the firm. As the taxes required to finance such subsidies impose deadweight loss, marginal cost pricing is not usually adopted in practice in industries with decreasing average costs.