An article in the Wall Street Journal gives the following explanation of how products were traditionally priced at Parker-Hannifin Corporation: "For as long as anyone at the89-year-old company could recall, Parker used the same simple formula to determine prices of its 800,000 partslong dash—fromheat-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 aimed for about 35%. Many managers liked the method because it was straightforward... ." Source: Timothy Aeppel, "Changing the Formula: Seeking Perfect Prices, CEO Tears Up the Rules," Wall Street Journal, March 27, 2007, p. A1. Is it likely that this system of pricing maximized the firm's profits? Briefly explain. This system of pricing likely
A. maximizes profits because it results in the same markup for products that are more price elastic and less price elastic.
B. maximizes profits because it is easy to identify the cost of producing a particular product.
C. does not maximize profits because production occurs where marginal revenue equals marginal cost.
D. does not maximize profits because it ignores consumer demand.
E. both a and b.
