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  • Feb 23, 2008, 06:07 PM
    cmulabah
    Price-setting firm
    Explain why a price-setting firm will always set its revenue-maximizing price below the price that would maximize its profit.
  • Feb 23, 2008, 06:19 PM
    thegandyman
    Many factors go into maximizing profit.
    It makes more sense to make a hundred pennies than it does to make a clean dollar.
    More people happy with knowing they got a good deal is better than one person knowing they got ripped off.
    "Price setting firms" by whatever name obviously deal with much more subtle margins than that but they work on the same principle. If there is a finite number of people that can make purchases, then the margins are higher, if there is a finite number of purchases a person can make, the margins are also higher. If one person can make multiple purchases, you will find much narrower gross margins.

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