IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-05084623.html
   My bibliography  Save this paper

Are Operating Margin, Markup and Unit Margin Good for Profit? An Approach Based on Microeconomic Theory

Author

Listed:
  • Louis de Mesnard

    (CREGO - Centre de Recherche en Gestion des Organisations - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE] - UBE - Université Bourgogne Europe)

Abstract

Managers often say that they want to make their company more profitable by increasing the unit margin, operating margin, or margin rate, making these strategic objectives. There is some confusion in their language, as these three metrics seem to be equivalent to maximum profit. We use simple microeconomic theory to show that they are inconsistent with the objective of maximum profit: the output is lower, and the price is generally higher, when these alternative objectives are chosen instead of the maximum profit. Output is lowest when the unit margin is chosen; the highest output corresponds to maximum profit; the output derived from maximizing operating margin or markup is the same and lies between the two previous maximums. Prices are in the reverse order under imperfect competition for normal goods. Maximizing margin metrics results in lower profit than maximizing profit. This has implications for how companies communicate, both internally and externally, and for their governance.

Suggested Citation

  • Louis de Mesnard, 2025. "Are Operating Margin, Markup and Unit Margin Good for Profit? An Approach Based on Microeconomic Theory," Post-Print hal-05084623, HAL.
    • Handle: RePEc:hal:journl:hal-05084623
    DOI: 10.1002/mde.4535
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-05084623. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.