5.4c - Methods of Improving Profit Flashcards
1
Q
Why might a business struggle to increase profit through increasing the quantity of products sold?
A
- Competitors will respond
- Marketing efforts may fail
- Sales value may fall if price is reduced
- Business may not have capacity to produce more
- Not enough demand
2
Q
What are the methods of improving profit?
A
- Increase quantity sold
- Increase selling price
- Reduce VC per unit
- Increase output
- Reduce fixed costs
3
Q
Advantages of increasing price to improve profits:
A
- Customers may perceive product as higher quality
- No need for extra production capacity
4
Q
Why might a business struggle to increase profits through an increase in selling price?
A
- Product has to be inelastic (sales value may fall is price is matched by bigger fall in quantity sold)
- Customers have to be loyal
- Competitors are likely to respond
- Customer may decide to switch to competitors
5
Q
Why might a business struggle to increase profits through reducing the VC per unit?
A
- Operations need to be organised more efficiently
- Employees need to be more productive
- May result in lower quality so greater wastage
- Customers may notice decrease in quality
6
Q
Advantages of increasing output to improve profits:
A
- More products available to meet demand
- Fixed costs are spread over a greater number of units
7
Q
Why might a business struggle to increase profits through an increase in output?
A
- Extra output may not sell
- Business may not have spare capacity to produce more
- Quality may be compromised
8
Q
Why might a business struggle to increase profits through reducing fixed costs?
A
- Quality may be compromised
- Intangible costs (lower morale after redundancies)
