Scale or margin

Revenue is the product of quantity and price and profit is equal to revenue minus cost. For a company to increase its profit, there are two ways to increase the revenue or reduce the cost. However, there could be a correlation between revenue and cost.

As there are two determinants for revenue, the price could have a negative correlation with the quantity. If a company is large enough, the quantity reflects the market supply, when the quantity increases, it implies an increase in the market supply, and an increase in the market supply usually leads to a decrease in the market price. However, an increase in the quantity usually can lead to a decrease in the average cost of production, due to the economies of scale, as the quantity increases, the marginal cost is declining and the average cost also decreases. Therefore, when a company decides to lift the quantity of production, the cost could decrease but the price could also decrease. Similarly, when a company has the market power and decides to lift the price for its products, the quantity is very likely to decrease and the average cost is likely to increase. 

A company can choose to increase the scale or increase the margin to boost its revenues. Increasing the scale is the same as increasing the quantity and increasing the margin is the same as increasing the price. When choosing between the two methods, the company has to consider the market elasticity of demand. As when the elasticity of demand shows consumers are inelastic, an increase in the price could lead to a small decrease in the quantity; therefore, it may be better to increase the price, especially when the average cost of production does not increase significantly. On the other hand, when the market demand is elastic, it is definitely better for the company to increase the quantity rather than the price.