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Under which condition, will it be the same whether you choose to use revenue maximization or to increase contribution margins? In what industry is this possible?

In my thought process, I was thinking that before above condition can be true, the industry/company will need to have no variable costs, only fixed costs - but I am unsure.

Can anyone help me answer above since I can't seem to wrap my head around it.

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If "contribution margin" is price minus variable cost per unit, and "revenue" is price times units sold then, even with zero variable costs, optimising

  • maximum contribution margin
  • maximum revenue

will typically be at different points

Assuming the demand curve of quantity and price is downward sloping, the contribution margin will fall as quantity increases, so the maximum contribution margin will at the maximum price, typically for minimal quantities. If instead the demand curve is upward sloping initially and then downward sloping, then without variable costs the contribution margin will be maximised at the highest possible price

Meanwhile total revenue is usually not maximised for minimal quantities as at that point revenue will also be minimal. Instead it will be maximised when marginal revenue is zero (when the increasing revenue for marginal additional quantities exactly offsets reducing revenue from reduced prices), which with a smooth demand curve will typically be at a higher quantity and lower price than the maximum price point

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