paladin asked:
How do you use you profit figures to tell you what to do next ?
How do you use you profit figures to tell you what to do next ?
I can see that a flower seller might look at increasing average profit curve and conclude it would be profitable to buy and resell more flowers. As the curve levels out, the flower seller would know when to stop buying increasing numbers of flowers.
Same system would work for several variables but I can’t get my head around it.
I have no idea what you are studying but this may help you.
Each time we buy something and resell it at a higher price, we make a profit. If the item has a shelf life, we can hold it for more time and the question of throwing it away doesn’t arise, which may happen with flowers, fruits, food etc. , or even they may be kept in cold storage and sold next day if possible. We have some fixed expenses and some variabe expenses (they are called fixed and variabe costs in the theory of costing). Shop rent, salaries, EMI payments etc. are fixed costs. The cost of each item like a flower or a food item is variable. So, you need to sell a minimum number to cover your fixed costs and that is called breaking even.
After you break even, the more you sell, the more you profit but you cannot go on buying more and more since logistics, shop size, staff availability etc. will be limiting factors. So, in a given situation, there is a maximum of the profit curve.
You could then think of expanding the shop, opening more branches, offering franchise operations and so on…Each has its own implications and will impact the bottom line differently.
Different products and different services will have different cost- proft models. Even the same product will have its cost-profit model differently for different scale of operation. It is a specialised subject.