The general pricing principle of theory of monopolistic competition is that marginal revenue should be equated with marginal cost. The logic is that output should be expanded until the last unit just adds enough to the total revenue to pay for its addition to the total costs. One less unit would more than pay for itself, and one more unit would less than pay for itself. And yet merchants do not, at least consciously, use the technique of pricing where MC=MR, The usual pricing method of retailers-that of adding a certain percentage markup to the purchase price of the good- does not invalue the determination of marginal revenue and marginal cost schedules, and the setting of price at such a level as to equate the two. Rather, the method is essentially an "average cost" method of simply arbitrarily dividing the total cost, including the overhead, among the various products carried. Thus it would appear that either retailers are not following methods of pricing which yield them maximum returns, or in some way, the theoretical analysis is inadequate. The solution to the difficulty is, I believe, to be found by extending the analysis to consider the question of long-run profit.