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Cost plus pricing is "circular" for manufacturing firms. They estimate demand to determine fixed manufacturing costs per unit, so that they can mark up cost to obtain a price. However the price affects the quantity demanded, the higher the price the lower the demand.
The fewer the units purchased the cost per unit will go up, increased the cost plus price, lowering the demand further.
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Earn +20 ptsQ: Why Cost-plus pricing is inherently circular?
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