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Meeting The Industry Norm But Losing Money

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Samuel Miliken's company has reported losses from operations for several years. Industry standards indicate that prices are normally set at 30% above manufacturing cost, which Miliken has done. Assuming that his other costs are aligned with industry norms, how could Miliken continue to lose money while his competitors earn a profit?

Please explain. Thank you.

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Solution Summary

This solutions delves into the eccentricities of companies which use the industry norm as a pricing guideline but still lose money. How Miliken could continue to lose money while his competitors earn a profit is determined.

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There are at least two possible reasons. First, though Miliken's company has set its prices 30 percent above its manufacturing costs, perhaps its manufacturing costs are so much higher than those of its ...

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