Question

: You have a product that sells for $100, and costs you $60 to make. A customer normally orders 1,000 units, but will order 2,000 if you drop the price 20%. Would you make more or less on the larger order?

Answer 1

Answer:

less profit per unit

Explanation:

• If a customer normally orders 1,000 units, then total profit =  $100-$60 * 1000 units = $40,000. (i.e we subtracted cost from selling price to determine profit per unit, and then multiply by the total unit ordered to get total profit)

• If you drop the price 20% out of $100 ($100 - $\frac{20}{100} *100=$ $80) for the order of 2000 units, then profit = $80-$60 * 2000 = $40,000. (i.e we reduced selling price by 20% and then substracted cost, $60 from selling price to determine profit per unit, and then multiply by the total unit ordered to get total profit)

Although the total profit is the same, we observe that the profit per unit is lesser on the larger order, which has a profit per unit of $20 ($80-$60), while the smaller order has $40 ($100-$60) per unit profit.