Thursday, November 27, 2008

When minimum cost doesn't equal maximum profit

I guess the only time that minimum cost doesn't equal maximum profit is when there are points in the profit function where revenue would increase enough to outweigh the increase in cost. This could occur if there was some sort of additional revenue at a particular point of sales. For instance, if certain customers cost more to service than others, servicing the more profitable customers to a level beyond the point of minimum cost may payoff with additional revenues that make the profit even higher.

1 comment:

OM523-G4 said...

I think this is an interesting topic. I would add that maximizing profit for one individual SKU or customer will not always lead to maximized profit for the company as a whole. I think this is probably because of resource constraints that limit the company's decisions.

-Andrew Freeman