5.4c Methods of Improving Profit

Question 1

Ways to improve profit

Answer 1

• Increase quantity sold
• Increase selling price
• Reduce variable costs per unit

Question 2

Net profit formula

Answer 2

Net profit = sales - total costs

Question 3

Why increasing quantity sold may not improve profit

Answer 3

• Competitors are likely to respond
• Marketing efforts may fail
• Business may not have capacity to sell more

Question 4

Why increasing selling price may not improve profit

Answer 4

• Product has to be inelastic or a necessity
• Customers have to be loyal
• Competitors are likely to respond

Question 5

Why increasing output may not improve profit

Answer 5

• Extra output may not sell
• Business may not have spare capacity to sell more
• Production quality may be compromised

Question 6

Why reducing costs may not improve profit

Answer 6

• Cost cuts could affect quality

- Intangible costs e.g. lower morale after redundancies.