Relationship profit margin - revenues and costs

Question

Referring to:

“Coffee machines revenues have increased by 1/9 in the last year and their costs have increased proportionally. This means that machines profit margin has been steady and price reduction has been offset by lower costs.”

If Coffee machine revenues increase which as prices fall must be due to an increase in units. In the case that units would increase but without a fall in prices, we would expect that profit margins increase as fixed costs are now split among more units. (assuming equal VC). Now that prices fall it seems feasible to me that the profit margin is steady and the same cost levels, as I would normally expect profit margins to increase when units increase.

Answer 1

Hi there,

I think you're saying this situation can only be explained by higher volumes?

If so, I would agree!

Answer 2

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