2.2 Profit
Completion requirements
Profit is the difference between revenue and expenses (the difference between the selling price of the goods or services and the production costs of doing business). In a mixed economy, profit is the driving force behind production.
PROFIT = (SELLING PRICE x LEVEL OF PRODUCTION) - PRODUCTION COSTS
To increase profits, you can increase selling price.
Profit based on increasing selling price depends on the production costs (primarily wages, salaries, and benefits) AND the levels of production (or volume of sales) remaining the same.
To increase profits, you can decrease production costs.
Profit based on decreasing production costs depends on the selling price AND the levels of production (or volume of sales) remaining the same.
Salaries, wages, and benefits make up the greatest proportion of production costs. To reduce these costs, you need either to reduce employee salaries and wages, or to reduce employee benefits. You can't just reduce the number of employees because this likely would result in decreased levels of production. For this reason, decreasing production costs is the most challenging way to increase profits.
Salaries, wages, and benefits make up the greatest proportion of production costs. To reduce these costs, you need either to reduce employee salaries and wages, or to reduce employee benefits. You can't just reduce the number of employees because this likely would result in decreased levels of production. For this reason, decreasing production costs is the most challenging way to increase profits.