Selling Costs and Equilibrium Output
There three possible output of which advertisement Wily one. the other two methods arc low cup ice and cairn quality. The inter convention Schnabel costs difficulty of underpinning is obvious that higher total sary to sell a larger output at the s.uue price 0″ the same output a highcr prices. In order to ascertain the equilibrium output the following formula may be uscd:- Net return, = (price x Output) – (Production Cost + Selling Co, t). The problem is to [ind out that output at which Ute net returns will be the highest. We have already seen that selling costs create a ncw demand curve. One method of finding out the most profitable output is tu regard the selling costs as a fixed cost in connection with that particular demand curve. A diagram may be drawn for ueh possible selling cost and the demand The above conclusion is correct because the relationship between increase in advertisement cost may bring more and more sales and profit upto a point only specially when the product is in the growth and maturity phase of a product cycle. If the product has reached the declining phase. then increase in selling cost not necessarily brings about increase in profit and sales. rather it may decrease the sales and profit. There can be some exceptions to this problem. in recent year radio’s and jute has re-emerged and significantly its revival of demand is giving more profit.
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