Answer to Question #211251 in Finance for Sphesihle Zuma

Question #211251

Profit is the compensation that someone is entitled to when delivering a service. In other words, when an article is sold at a higher price than what it was bought for, the difference is the profit. When, however, the expenses exceed the income, we have a loss sometimes this is the case, but when a business make top much profit because of too high prices, clients will go and buy from other other business in the vicinity. This will force the retailer to lower the prices. Elaborate on any five factors which influence profit.

Expert's answer

Factors that influence profit

  • Production units of production

Profit margin is directly affected by the number of units produced. Such that the higher the number of units the more profits earned ceteris paribus.

  • Variable costs

These are costs that occur during production and would not be incurred if there was no production. Firms try as much as possible to reduce variable costs so that profit margins increase.

  • Productivity per unit

In order to increase profit we tend to increase productivity per unit. Unfortunately, it is impossible to increase production without increasing the costs.

  • Enterprise Mix

This refers to the diversification in production. In agriculture there is crop rotation. Wise enterprise mix leads to high profit margins.

  • Overhead costs

Also known as direct costs. The lower the fixed costs are the higher the profit margins. Overhead costs in agricultural production include expensive tractors and harvestors.

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