[quote]Originally posted by Stagflation Steve:
Read a Microeconomics textbook at come back when you know what you are talking about, you are calculating a locked in expense ratio, expenses don't rise in lock step with growth.</strong><hr></blockquote>
Now we're talking about something I know something about!
Stag and JLL, you both have great points. Without a doubt, lowering the price of a Mac will sell more Mac's. Without a doubt, some expenses are more fixed than others, so raising units sold will not raise those (fixed) expenses. Without a doubt, every business prices their products to maximize current and future profits.
Two points I would raise are elasticity and costs -
1) Elasticity of price
Lowering a Mac price will sell more units, but how many? Stag - how much lower would the price have to go to sell more Mac's such that the total gross margin will be greater than the current total gross margin? I would expect that the more Mac's sold will drive down some component costs, but let's not grossly over-estimate this.
CTG = (C#MacSold * Price) - (C#MacSold * cost)
NTG = (N#MacSold * LowerPrice) - (N#MacSold * (cost - smallSavings)
CTG - Current Total Gross
NTG - New Total Gross
Total Gross - (price - component costs) * units sold
Stag - what would be your educated guess at solving the NTG equation? Is there a solution where NTG > CTG? According to JLL's attempt previously, there is no solution for NTG > CTG.
2) Production costs.
Don't forget that Production costs can actually rise as more units are produced. This can happen when having to use less efficient manufacturers to produce needed components. For instance, more iMacs may require another source for flat panels, which might require new development engineering costs.
Let me add a couple of things -
1) Apple's costs are high due to various reasons. I'm sure some of the costs could be lowered through smart management. For instance, sell all Silicon Valley capital assets and move to Austin! But I'm also sure that Apple as a premium product producer has higher - justifiably so - costs than Dell and Gateway. So the debate would be about where is the fluff? Matsu - As the commercial goes, I bought Apple
- about a 100 shares, so I'm with you about increasing profits and cutting costs. Hopefully, performance will be addressed sooner than later (PPC 970 - Please come SOON!!!)
2) Stag - I am really interested in your thoughts on price versus units sold. Also - what premium would people pay for a Mac such that sales would double/triple?
[ 12-30-2002: Message edited by: jwdawso ]</p>