> Now, do you mean "the company made 15% profit", or do you mean "each
> time the company sells 1 car, 15% of the sale price is profit"?

The company made 15% profit.  Given they only sell cars, on average each 
car will make 15% profit also?


>
> Really? You can buy an actual Ferrari for that amount of money??

http://www.carpages.co.uk/guide/ferrari/

> Well, yes, anything safety-critical usually has very large design and
> test costs. (If you think cars are expensive, try developing drugs for a
> living...)
>
> Presumably the cost of testing a cheap car is exactly the same as the
> cost of testing an expensive car though.

Apart from the cost of the cars used in testing, yes the procedures and 
equipment will be the same.  The cost of destroying 10 Ferraris when you 
only plan to sell a few thousand of them is going to push up the per-car 
price noticeably though...

> As I understand it, set-up cost is usually very large. So if you
> manufacture more units, the set-up cost is divided between more units,
> so the /per unit/ price is lower. Presumably the actual set-up cost
> itself is identical in both cases.

Probably even more expensive for the cheap cars, because you will need 
all sorts of robots and assembly lines to keep the per-car cost down. 
For the Ferraris it is simply too expensive to get such sophisticated 
equipment, much cheaper per-car to just do the process by hand, but 
still many times more expensive per-car than one mass produced in a 
highly automated factory.

> There are things like CDs which cost virtually nothing to manufacture,
> but still cost a lot to set up. So the set-up cost is virtually the
> entire cost.

Sure, but if you were to make 5000 CDs a year in your basement, the 
per-piece price of making the CDs is going to be huge, even if your 
set-up costs would be tiny compared to the big factories.

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