An article in the Wall Street Journal gave the following explanation of how products were traditionally priced at Parker-Hannifin Corporation:
For as long as anyone at the 89-year-old company could recall, Parker used the same simple formula to determine prices of its 800,000 partsĂ˘â‚¬â€ťfrom heat-resistant seals for jet engines to steel valves that hoist buckets on cherry pickers. Company managers would calculate how much it cost to make and deliver each product and add a flat percentage on top, usually aiming for about 35%. Many managers liked the method because it was straightforward.
Is it likely that this system of pricing maximized the firmĂ˘â‚¬â„˘s profit? Briefly explain.
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