Ask Question
1 March, 10:48

Assume a firm sells 1m units of its product for $10 and has a 30% gross profit margin ($3). cutting the price to $9.50 might stimulate unit sales by 10%. will the assumed increase in sales volume offset the decrease in margin?

+4
Answers (1)
  1. 1 March, 11:07
    0
    Case 1: Unit price = $10

    Profit = $3 * 1m = $3m

    Case 2: Unit price = $9.50

    Since cost per unit is constant which is $7, therefore profit per unit is now $2.50.

    Profit = $2.50 * 1m * 1.10 = $2.75m

    Therefore the increase in sales volume does not offset the decrease in profit margin.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Assume a firm sells 1m units of its product for $10 and has a 30% gross profit margin ($3). cutting the price to $9.50 might stimulate unit ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers