Profitability and Marginal costs

Profitability and Marginal costs

How do they work in an enterprise?

What is Profitability?

Profitability is a measurement of efficiency – and ultimately its success or failure. A further definition of profitability is a business's ability to produce a return on an investment based on its resources in comparison with an alternative investment.

What determines an enterprise's profitability?

• Your profitability in business is your revenue from operations, less your expenses. The greater the result, the more profitable you are.

• Competition: The less competition the better.

• Demand: The higher demand for your products/service the better.

• Size: The size matters. A bigger company produces more.

• Productivity: Increasing your manufacturing. Being efficient and effective.

• Advertising: It can boost sales.

• Overhead: General expenses.

What is a marginal cost?

The marginal cost is the cost of producing one more unit of a good. Marginal cost includes all of the costs that vary with the level of production. For example, if a company needs to build a new factory in order to produce more goods, the cost of building the factory is a marginal cost.

Multiple Choice

What does Profitability mean?

• Revenue generated from business activities, less your expenses.

• Revenue generated from business activities.

• Cost production

• Direct expenses

Multiple Select

What determines a company's profitability? Pick all the correct answers.

• Competition, demand, advertising

• Size, productivity, overhead

• Demand, supply, marginal costs

• overhead, direct expenses, supply

Multiple Choice

What is a marginal cost?

• It refers to the the cost of production

• It refers to the increase in the cost of producing one more unit or serving one more customer

• It refers to decrease in the cost of producing one more unit or serving one more customer