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Impact of Cost Changes on a Markup Pricing Strategy
A company uses the pricing rule (P - MC) / P = μ, where P is the price, MC is the marginal cost, and μ is a constant positive value representing the firm's profit margin. If a technological innovation causes the company's marginal cost (MC) to decrease, explain what must happen to the price (P) for the profit margin (μ) to remain constant. Justify your answer based on the given equation.
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Impact of Cost Changes on a Markup Pricing Strategy