1. What, specifically, are the flaws in this exercise?
First is the assumption that he'll be able to continue buying them at $.02, no matter what the quantity.
Second is competition. He might sneak under the radar the first few days, but once he starts selling somewhere near 100 apples, someone will start trying to beat him on price.
Third is logistics. While he might be able to sell 100 apples a day, it would be impossible to sell 10,000 apples a day without help. Help eats into profits, which destroys the profit matrix. He also would not likely be able to sell them all from one location, which brings shipping and spoilage into the equation.
Fourth is the law of supply and demand. The more apples he supplies, the less the demand for them will be, making the selling price decrease. At the same time, his demand is higher because the supply (from growers) will remain steady. This higher demand will drive his costs up. This is the dreaded condition known as shrinking margins.
Fifth, this exercise assumes linear growth. In all reality, demand and opportunity seldom join forces to permit linear growth. What would happen if it rained for a week in the middle of this exercise? It could be safely assumed that revenues wouldn't double daily during that time. In fact, spoilage could occur, driving the matrix backwards.
2. How do these flaws relate to what your average Joe or Jane hears when they meet with their financial planner? Or for the average young buck planning to double their income every year?
Financial planners, especially those selling a product, tend to promote linear growth. While not many would promote 100%/year linear growth, they might push 8-15% linear growth. A few years of negative growth early in the formula period could render the financial plan worthless.
3. How many real world examples can you find of sales doubling OVER AND OVER? It doesn't have to be each day-- For instance, try to find an industry that doubles its sales each year, for 37 years.
Ya' gotta' be kidding!:bgh:
Last edited: