This question refers to the initial example in the recorded lecture.
A] Suppose unit sales of shoes increase 10% to 220 pairs. What are the company’s profits and ROE? R Remember that variable costs will change but fixed costs will not.
Calculate the percentage changes in revenue and profits between the initial situation and this one. Can you explain why they are so different?
B] Return to the original case of 200 pairs sold. Now analyze the effects on revenue and profits of a 10% increase in price per pair sold. Which is better – an increase in unit sales or the same percentage increase in price? Why?
