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Fortnightly Magazine - September 1 1996

7. The term "profit margin" is often used interchangeably with the term "contribution margin" in this article. This is potentially confusing because the term "profit" usually refers to the residual revenues after deducting total costs, including joint and common costs, and as used popularly, the term "profit margin" really refers to an individual product's or service's contribution toward overheads (which in turn must be deducted from total revenues in computing a firm's total profits).

8. Neil Strauss, "Pennies That Add Up to $16.98: Why CD's Cost SO Much," Wall Street Journal (July 5, 1995), at B1 (midwest ed.).

9. This depends on where they are made. The cost is $15 in China or Indonesia, $20 in Korea. Mark Clifford, "Spring in Their Step," 5 Far Eastern Economic Review 56, 59 (November 1992).

10. Id.

11. "Infotech: Fast Times at Compaq," Fortune 121, 122 (Apr. 1, 1996).

12. Id.

13. Brent Schlender, "Big Blue is Betting on Big Iron Again," Fortune, 106 (April 29, 1996).

14. Robert Lenzer & Stephen S. Johnson, "A Few Yards of Denim and Five Copper Rivets," Forbes 82, 3 (February 26, 1996).

15. Id. at 86.

16. "Cereal Wars: A Tale of Bran, Oats, and Air," Fortune 30 (May 13, 1996).

17. Id.

18. William M. Bulkeley, "Today's Mystery: Who Buys All Those Souvenir Spoons? Fort Inc. Sells 6 Million a Year, to Mr. Fort's Surprise," Wall Street Journal (June 6, 1991), at A1.

19. The discussion in John C. Panzar, "Technological Determinate of Firm and Industry Structure," in 1 Handbook of Industrial Organization 3, 13 (Richard Schmalensee & Robert D. Willig eds. 1989) makes this quite clear. Note, however, that incremental costs include product-specific fixed costs.

20. This holds true under a wide variety of conditions found in telecommunications, See, Robert D. Willig, "Pareto-Superior Nonlinear Outlay Schedules," 9 Bell Journal of Economics 56 (1978). See also, Daniel F. Spulber, Regulation and Markets, 552-53 (1989); Louis Philips, The Economics of Price Discrimination, 181-82 (1983).


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