economics- why does profit fall when you sell more goods?-ASAP?

the more goods sold, he more profit you make, but at some point the amount of profit starts to decrease with the increase of goods sold. Why does this happen!?!?! please help asap

4 Answers

  • 1 decade ago
    Favorite Answer

    because the more you produce, two things happen:

    1) the cost of making each additional good goes up

    2) the price of selling each additional good goes down

    3) the additional profit falls as #1 goes up and #2 goes down

    example of #1. there's a factory that makes shoes. at first, it's not that more expensive to make each shoe up to let's say, 100,000 shoes. but after that, you have to ask people to work overtime and pay 1.5 times their normal hourly wage. if you need to make even more shoes, they have to come in during holidays and you have to pay them 2 times their normal hourly wage. so at some point, the cost of making each additional shoe goes up.

    example of #2. let's say you operate a movie theatre with a fixed amount of seats and showtimes. af first, you make a lot of money selling all the evening/weekend shows and earn $12 per ticket. but at some point, you sell all the evening/weekend show seats, and you have to sell the matinee shows at $6 per ticket. reason is that people don't like matinees so you sell them at a lower cost. so at some point, the additional moneys collected for each additional seat goes down.

    as you sell each additional unit of output, all countries experience increasing costs (as you employ increasingly expensive production assets) and decreasing revenues (as each unit of output is deemed less valuable by the customers).

  • 1 decade ago

    That sounds bizzar. Are you sure you have the question right? Normaly it's the other way around because the first x sales have to cover the business overheads and the sales there after are more profitable. In addition, wholesalers give volume discount to their bigger clients.

    Is the question more in the context of reducing the mark up with the intention of selling more items? That's the only logical reason I can come up with.

  • 1 decade ago

    This is called the break even point.

    Break Even:

    Number of units that must be sold in order to produce a profit of zero (but will recover all associated costs).

    (Break Even = Fixed Cost / (Unit Price - Variable Unit Cost))

    Break Even Analysis

    Break even analysis depends on the following variables:

    The fixed production costs for a product.

    The variable production costs for a product.

    The product's unit price.

    The product's expected unit sales [sometimes called projected sales.]

    On the surface, break-even analysis is a tool to calculate at which sales volume the variable and fixed costs of producing your product will be recovered. Another way to look at it is that the break-even point is the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company.

    You can also use break even analysis to solve managerial problems:

    setting price levels

    targeting optimal variable/ fixed cost combinations

    determining the financial attractiveness of different strategic options for your company

    Using The Break Even Calculator

  • 1 decade ago

    depending on the industry, variable costs can increase with higher production. when you have a factory, for example, and there is one person working they usually work more efficiently than if the factory was bustling with people. thus costs increase

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