Exploring impact of production volume and product quality on manufacturers' profitability: analytical modeling and empirical validation

Abstract

Purpose: This study aims to develop analytical models that consider product quality and production volume as essential drivers for profitability in the marketplace. It also considers product demand and price dynamics to understand related nuances backed by empirical validation. Design/methodology/approach: The pricing mechanism is influenced by production quality, while product demand is influenced by both price and quality. The study considers cost elements, including production cost and quality loss cost which in turn are influenced by production volume and product quality. It establishes analytical conditions for optimal product quality and applies them to numerical analyses considering four distinct industry settings. Findings: The study reveals that unique solutions exist for optimal product quality at each production level in four industry scenarios. The optimal production volume depends on product quality, and empirical research validates these findings from analytical models and numerical analysis. Originality/value: This study represents a pioneering effort to investigate operational strategies in both analytical and empirical contexts, thus contributing to the existing body of knowledge in this area.