Great post here by Bill Waddell about the Toyota “Profit/Cost” model of
Profit = Price – Cost. He elaborates on it as “Profit = (Price x Volume) – Cost and points out origins tracing back to Andrew Carnegie in the 1800’s.
Most companies, even today, operate under the model of thinking Price = Cost + Desired Profit. Prices are not set by companies, for the most part, they are set by the market.
The only thing you have under control is costs. But, most American companies “cut costs” by closing plants and laying off people. As Bill points out, that also cuts volume, which could very well cut profit.
Here are links to earlier posts of mine on this topic:
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