The profit margin of a commodity refers to the difference between price and cost, and the two are negatively correlated. When the price is constant, the profit margin of a commodity depends on the cost. The lower the cost, the greater the profit margin, and vice versa. When the cost is constant, the profit margin of a commodity depends on the extent of the price increase. If the price can be increased (Note: not all commodities can be raised arbitrarily), the profit margin will be greater; otherwise, the profit margin will be smaller. Therefore, to judge whether the profit margin of a commodity is large or not, it is necessary to compare the following two aspects.
1. When the price is constant
As mentioned earlier, the profit margin of a commodity depends on the difference between the price and cost of the commodity, and the two are negatively correlated. When the price is constant, if the cost of the commodity is low, then the company’s profit will increase; otherwise, the company’s profit will decrease.
If the price of goods in the market is $100, the cost of producing food crops is $10, and the cost of producing high-tech electronic products is $1,000. Now if both goods are sold at the same time, the food crops produced at low cost will make a profit of $90, while the high-tech electronic products produced at high cost will lose $900. Compared with the two, it is obvious that the profit margin of producing food crops is large, while the profit margin of producing high-tech electronic products is small. In the long run, it is bound to lead to market imbalance, thus causing various economic problems. Therefore, when enterprises choose goods, they should fully consider the cost when the price is fixed.
2. Under the condition of fixed cost
Since the profit margin of goods is affected by the price and cost of goods, when the cost of goods is fixed, the higher the price of goods, the greater the profit margin.
If the cost of producing all products is $100, and the price of grain crops in the market is $10, and the price of high-tech electronic products is $1,000, and now both products are sold at the same time, the grain crops sold at a low price will lose $90, while the high-tech electronic products sold at a high price will make a profit of $900. Compared with the two, high-tech electronic products have a larger profit margin. Therefore, when enterprises choose goods, they must fully consider the price of goods under the condition of certain production costs.
In summary, the profit margin of goods is subject to the constraints of both price and cost, so enterprises must fully consider the interests between the two. Of course, the market will not have a situation where all commodity costs and prices are quantitative, because the market is unpredictable. In order to ensure that enterprises can obtain the maximum profit in market competition, the relationship between commodity costs and prices must be coordinated.