Most large manufacturing companies report setting prices by marking up some version of full cost. The rationale is that full cost pricing provides a quot;satisfactory profit.quot; This paper shows that a full cost markup rule imposes a constraint which may prevent the company from achieving...

This paper demonstrates that for a multi-product firm with fixed costs, full-cost markup rules impose a constraint on the relationship among product prices that may prevent the firm from achieving satisfactory profits even when satisfactory profits are feasible. For any given cost structure and...