Value creation
Two basic conditions determine a firm's profits: the amount of value customers place on the firm's goods or services and the firm's costs of production. In general, the more value customers place on a firm's products, the higher the price the firm can charge for those products. Note, however, that the price a firm charges for a good and service is typically less then the value placed on that good or service by the customer. This is so because the customer captures some of that value in the form of what economists call a consumer surplus.
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