JakeWalk
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#1
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What are main benefits of increased revenue if costs have also increased?
(economies of scale?)
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MindMax2000
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Coming from someone who did degrees in management and economics, as well as having done A Level business studies, none really.

If the revenue and cost increase at the same rate, your GP and NP ratios won't change (bad for investors). However, if revenue increases more than cost in absolute amounts, it's more profitable.
If you get the same amount of profit from absolute increase revenue and cost, you don't really benefit. Infact, financial risks may have increased. It may look impressive to say you have generated more revenue on the surface, but it won't mean much at the end of the day.

The ideal fantasy scenario is increase revenue at a signficantly higher rate than the rate of cost (ideally lower, none, or even negative - really unrealistic), and ideally have increasing profitability.

In terms of economics i.e. economies of scale, the best place to be is the point where marginal revenue = marginal cost i.e. where the rate of increase in revenue is equal to that of cost. No economic textbook will say that you can have increase revenue with diminishing costs, unless it's diminishing cost of scale.
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JakeWalk
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#3
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(Original post by MindMax2000)
Coming from someone who did degrees in management and economics, as well as having done A Level business studies, none really.

If the revenue and cost increase at the same rate, your GP and NP ratios won't change (bad for investors). However, if revenue increases more than cost in absolute amounts, it's more profitable.
If you get the same amount of profit from absolute increase revenue and cost, you don't really benefit. Infact, financial risks may have increased. It may look impressive to say you have generated more revenue on the surface, but it won't mean much at the end of the day.

The ideal fantasy scenario is increase revenue at a signficantly higher rate than the rate of cost (ideally lower, none, or even negative - really unrealistic), and ideally have increasing profitability.

In terms of economics i.e. economies of scale, the best place to be is the point where marginal revenue = marginal cost i.e. where the rate of increase in revenue is equal to that of cost. No economic textbook will say that you can have increase revenue with diminishing costs, unless it's diminishing cost of scale.
Cheers for your reply, it was really helpful
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