Assume a firm sells 1M units of its product for $10 and has a 30% gross profit margin ($3). Cutting the price to $9.50 might stimulate unit sales by 10%. Will the assumed increase in sales volume offset the decrease in margin?
-Yes, the increase in sales will offset the decrease
in margin due to increased demand.
-There is no way to tell without knowing variable and fixed costs.
-No, the increase in sales will not offset the decrease in margin.
Answer: No, the increase in sales will not offset the decrease in margin.