Question

Assume BGL Enterprises increases its operating efficiency by lowering its costs while holding its sales constant. As a result, given all else constant, the ________.

1) profits will decrease
2) profits will increase
3) profits will remain the same
4) profits will fluctuate

Answer 1

If BGL Enterprises lowers costs while maintaining constant sales, profits will increase because lower total costs with unchanged total revenue lead to higher profits. This aligns with the business principle of profit maximization.

Step-by-step explanation:

Assuming BGL Enterprises increases its operating efficiency by lowering its costs while holding its sales constant, the profits will increase.

Profits are generally calculated by subtracting the total costs from the total revenue. If BGL Enterprises successfully reduces costs without impacting sales revenue, their total profits will rise due to the decrease in expenses.

This scenario aligns with basic profit maximization strategies in business, where a firm's goal is to increase the difference between its revenues and costs.

When marginal costs decrease, yet sales revenue remains unchanged, it logically results in higher profits, assuming all other factors remain steady.

This concept is supported by the principle that when marginal revenue (MR) equals marginal cost (MC), profits are maximized; thus, a reduction in marginal cost while revenue remains the same will enhance profitability.