I just watched the "Crack The Case" tutorial on preplounge. Regarding profitability cases, they argue that "when profits go down, you either have a decline in revenue, raising costs or both" - From my point of view, this is incomplete...
In the case of discounts, costs can go up (variable/q and fixed stay the same, just "q" increases), revenues go up, and profits can still go down.
Example:
year 1: price = $4, costs = $2/q (assuming only variable costs), q ("quantity") = 4K
-> Revenues= $16K, costs= $8K, profit= $8K
year 2: price = $3 (on average a discount of 25%), costs stay the same (i.e. $2/q), q = 6K
-> Revenues= $18K, costs = $12K, profit = $6K
Conclusion: When profits go down, you can have an increase in revenue...
Please correct me if I'm wrong. Highly appreciate any comment.
Best
so this means the factor who contributes to profit decrease here is the rising costs - which rise stronger in % terms than the revenues, thats why we have less profits?