Question

The impact of cost reduction on profits is much larger than the impact of increased
A. innovation.
B. production.
C. information.
D. sales.

Answer 1

Answer:

b is the correct option and answer

Answer 2

The impact of cost reduction on profits is much larger than the impact of increased D) sales.

Explanation :

• Cost-cutting boosts profitability, but only if sales prices and volume stay steady.
• If cost cuts result in a decrease in the quality of the firm's products, the corporation may be obliged to drop pricing in order to retain the same level of sales.
• Investments in unit cost reduction boost gross profit (defined as revenues minus variable direct expenses) in the lower (dotted) curve, but with declining returns.
• That is, the first cent of cost savings has a higher impact on gross profit than the following cent of cost savings.