Question

1. When you look at profit you look at revenues-costs. How do you compute profit?

2. If you wanted to increase profit, what can you do to the revenue side of the equation?

3. If you wanted to increase profit, what can you do to the cost side of the equation?

4. When it comes to costs, which costs can I manage more than the other and why? Fixed or variable?

5. Over the next few years economist expect that the next financial bubble might be the high debt of organizations bursting. A. Explain the difference between highly leveraged firms and low leveraged firms in regards to fixed and variable costs B. What are the benefits of being highly leveraged and the downfalls. C. Explain the benefits of being low leveraged firm and the potential downfalls.

Answer 1

As per rules I am answering the first 4 subparts of the question

1: Profit is the difference between revenues and costs.

2: To increase profits we need to increase revenues.

3: To increase profits we need to decrease costs.

4: Variable costs can be easily managed as compared to fixed costs.Variable costs are those that depend upon the volume of operations. So if the volume changes, the variable costs will change.Fixed costs however are fixed and do not change such as depreciation, rent etc.