To improve margins, a company can do which of the following?

• A. Invest in research and development
• B. Expand into new markets
• C. Reduce costs or increase the price of its product or service
• D. Increase debt

Answer: (C)

Improving margins means increasing the profit earned for each dollar of revenue. The most direct ways to do that are by cutting costs or by raising prices. When you reduce costs, you lower the expenses attached to delivering a product or service, so profit rises and margins improve, assuming revenue stays the same. If you raise the price and customers continue buying, revenue increases while costs stay roughly the same, which also widens the margin.

Other options don’t target margin directly. Investing in research and development often adds costs upfront and may pay off later with better products or pricing power, but it doesn’t immediately improve margins. Expanding into new markets can boost sales but typically comes with higher costs and risks, so margins may not improve right away. Increasing debt raises interest expenses, which reduces net income and can shrink margins.