Saturday, December 19, 2009

 

The Just Price


Suppose I am the only person who can sell a widget to John Doe. It costs me $10 to sell it to him, including the cost of my time and a standard profit rate. He would pay up to $30 for it, if he had to. What price am I justified in charging, if I can make a take-it-or-leave-it offer?

Note that I am leaving John Doe better off than if he never met me even if I charge him $29.

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