Hi Anonymous,

for question 1: theoretically yes, however you have to double check that product 3 is not required for the sales of the other two products since it is complementary (eg - you sell razors at a loss to sell blades at a profit). If that's the case, decreasing the volume of product 3 may lead to a decrease in volume for the other products not compensated by the target advertising, thus to an overall decline in profits.

for question 2: correct, you may have situations where margin decreases and absolute profits increase. For example:

• Revenues: 100
• Cost: 50
• Profit: 50
• Margin: 50/100=50%

Let's assume:

• Revenues increase: 10%
• Cost increase: 15%

Then:

• New revenues: 110
• New costs: 57.5
• New Profit: 52.5 (higher)
• New Margin: 52.5/110=48% (lower)

Of course, you may also have situations where the magin decreases and absolute profits decreases, which is the case when cost only increases. For example:

• Revenues: 100
• Cost: 50
• Profit: 50
• Margin: 50/100=50%

Let's assume:

• Revenues increase: 0%
• Cost increase: 15%

Then:

• New revenues: 100
• New costs: 57.5
• New Profit: 42.5 (lower)
• New Margin: 42.5/100=42.5% (lower)

Best,

Francesco