Importance of Profit
- Profit is the return for taking a risk.
- Profit measures the success of an investment
- Profit is an important source of finance (retained profit)
Profit= Total sales(revenue) - Total costs
- Total SALES GREATER than total costs= PROFIT
- Total COSTS GREATER than total sales= LOSS
- Total SALES = Total COSTS= BREAKEVEN
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- Value of sales acheieved in a given period is the quantity of product.
- Sold multiplied by the price that the customers paid.
Total Revenue= Selling Price X Quantity Sold
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- Increase quantity sold (cut the prices, elastic)
- Higher selling price price (inelastic)
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Elasticity of Demand
- ELASTIC products ARE sensitive to price change, meaning that the demand changes too.
- Examples of elastic products would be, Chocolate, Luxury items, technology etc.
- INELASTIC products are NOT sensitive to price change, therefor the demand stays the same.
- Examples of INelastic products would be things like, Petrol, bread, necessities.
- Petrol is INELASTIC because people still need petrol even when the price fluctuates up or down.
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Factors That Will Affect The Price That Can Be Cha
- Loyal Customers
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- Entrepreneurs need to know what it costs to produce a good or service.
- Costs of marketing
- How high are the overheads (bills)
- Opportunity costs
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Importance of Costs
Costs are important because they...
- Drain away profit
- cause of cash flow problems
- difference between making a profit margin
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Variable and Fixed Costs
- Costs that vary with output in the short run.
No sales = No Variable costs
Semi- Variable Costs
- Fixed up to a point then cost you more. (phone bills)
Calculating costs - Total costs
- Keep fixed costs low.
- Fixed cost increase the risk for a start-up.
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