George and Brown started a Chocolate manufacturing company a few years ago. They rented a building, bought equipment, and hired two cool and hip employees to work full time at a fixed monthly salary. Utilities and other operating charges remain fairly constant during each month.

During the past two years the business has grown with average sales increasing two percent a month. This situation pleases both George and Brown, but they do not understand how sales can grow by two percent a month while profits are increasing at an even faster pace. They are afraid that one day they will wake up to increasing sales but decreasing profits.

Required:

Explain George and Brown why the profits have increased at a faster rate than sales.