Final answer:
Material cost savings improve profitability rather than revenue; savings enhance profit margins if other factors remain constant. Investments in machinery to reduce labor costs, due to high wages, increase productivity but not revenue directly. The benefit to consumers from cost savings depends on the demand elasticity of the product.
Step-by-step explanation:
When a company achieves material cost savings, it does not automatically equate to a direct increase in revenue; instead, it more accurately translates to an increase in profit margins, assuming the sales volume and the price of the product or service remain constant. If a business saves a dollar on material costs while maintaining the same selling price, the savings fall to the bottom line, enhancing the firm's profitability rather than its revenue.
In reference to the provided information, if a company invests in machinery as a response to high wages, it may be able to reduce costs by needing fewer workers. However, increasing productivity through better equipment doesn't increase revenue in itself—it makes the production process more efficient, likely improving profit margins.
Furthermore, the impact of cost savings on prices and output depends on the demand elasticity for the product. For products with inelastic demand, cost savings can lead to lower prices and increased supply, resulting in greater consumer benefits. Conversely, for products with elastic demand, the price reduces only slightly, but still increases consumer benefit through a greater quantity supplied at a lower price.