How can profits decrease if revenue increases?

[Johneames]

hii,
      If you increase the price of the good that you are selling, your total revenue increases, but your total profit decreases. Supposing that your demand has not changed, what do these two facts imply for price elasticity of demand and your cost structure?

I understand that the product is clearly price inelastic - as demand is not changed when the price is increased. But what I'm struggling with is how the costs must have increased but the question does not mention any change in supply or other factors that could influence the production cost?

Thanks!

I didn't find the right solution from the Internet.

References:https://able2know.org/topic/339802-1



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[Harsh_Patel]

It could be many other things, cost as you mentioned is one.
Other is if government increases taxes.
If government imposed the tariffs on company’s products.

[Hydrogen]

The bolded portion here might give away potential answers:

If you increase the price of the good that you are selling, your total revenue increases, but your total profit decreases. Supposing that your demand has not changed, what do these two facts imply for price elasticity of demand and your cost structure

One answer could be volume. An example of this is, let's say that general motors makes a profit of $1,000 per vehicle sold. Under these circumstances GM's profit may be dependent upon the number of units they sell moreso than it is their total revenue.

Imagine a scenario where cars manufactured by GM cost an average of $5,000 and they raise the price to $7,000 (or another arbitrary number) with their profit per vehicle remaining $1,000. There could be a scenario where their gross revenue increases while their net revenue decreases off of a diminishing number of total cars sold.

Also if the price of their cars was $5,000 and it was raised to $7,000 with the profit per vehicle remaining $1,000 that could imply their cost structure was scaled in a way where liabilities and price were strongly correlated due to fundamental business model, etc.

[Istiyak adon]

whenever you collected one thing a little price and sold that a big price then you have more profit but at the seme time who thing thing mean produce sell just little profit then your business decrease.

[Proton2233]

You probably weren't looking. Factors that affect the cost of production a lot. If the goods are unsold sell it regardless of the cost to reclaim at least part of the money spent on its production. In some countries, reduce the level of wages of workers in order to reduce costs and remain competitive. There are still various methods to change the proportion of profit depending on demand.

[Pixyoxx]

It sounds little bit strange that hpw can profit decrease if the revenue is rising, but lets underdtand what is revenue. Revenue is the monetary vallue collected on behalf of sales, be it whatever that is being sold. Now sometimes some goods/services hold a very high margin while other dont. When the sales, there will be revenue automatically because we are selling something, be it high margin or low margin. But for profit to happen, and to rather increase, there should be more sale of the item that has a higher margin compared to others. If the sales of low margin product is high then although thr revenue is increasing because of the sale, the profit isnt increasing as higj as the revenue. Hope this answers the question.

[Btcmarmipp2]

It sounds little bit strange that hpw can profit decrease if the revenue is rising, but lets underdtand what is revenue. Revenue is the monetary vallue collected on behalf of sales, be it whatever that is being sold. Now sometimes some goods/services hold a very high margin while other dont. When the sales, there will be revenue automatically because we are selling something, be it high margin or low margin. But for profit to happen, and to rather increase, there should be more sale of the item that has a higher margin compared to others. If the sales of low margin product is high then although thr revenue is increasing because of the sale, the profit isnt increasing as higj as the revenue. Hope this answers the question.

Profit decrease if revenue increases. This can occur if your sales increase comes from higher sales of items that is cheaper to make and easier to sell  while you suffer a decrease of sales of high margin products cause it is greater expense and takes longer than low margin products

[shaun98]

Lots could influence that. For example, if the operation costs increase more than the percentage in increase of the revenue, then profits will decrease.