It's been awhile since I've done much with PayPal, but at one point a typical fee was $0.30 + 2.9%, so at a 3% fee they'd be taking a small hit in the processing fees for orders below $300 and turning a mild profit when people cash out for more than that. YMMV with their current fee structure.

Agreed it's a little scummy to not factor your operating expenses into the price of the product, especially if that's not blatantly obvious from the outset.