An analysis of the possibility of profit maximisation in business

The underlying logic of profit maximization is efficiency. There being one seller of the product under monopoly, the monopoly firm is the industry itself.

If marginal profit is less than zero If the firm produces greater than Q, at Q2 below MC is greater than MR and marginal profit is negative. The firm has complete knowledge about the amount of output which can be sold at each price. Hence, the firm should reduce its output. To the economist, normal profit is a cost and is included in the total costs of production.

At its most basic level, profit is the reward gained by risk taking entrepreneurs when the revenue earned from selling a given amount of output exceeds the total costs of producing that output. Competitive forces direct price movement and guides the allocation of resources for various productive activities.

This is known as profit satisficing. By firms in less than competitive markets, like firms operating under monopolistic competition and competitive oligopoliesby innovating or reducing costs, and earning head start profits.

Profit Maximisation and Wealth Maximisation: Meaning and Difference

They are not interested in profit maximisation. It means that decisions in any one period are affected by decisions in past periods which will, in turn, influence the future decisions of the firm. The two marginal rules and the profit maximisation condition stated above are applicable both to a perfectly competitive firm and to a monopoly firm.

Two financial objectives predominate amongst many objectives. Firms are not always able to operate at a profit. Increase the level of supernormal profits for each firm.

Keeping the above objection in view, most of the thinkers on the subject have come to the conclusion that the aim of an enterprise should be wealth maximisation and not the profit maximisation. The profit maximisation hypothesis is based on the assumption that all firms have perfect knowledge not only about their own costs and revenues but also of other firms.

The goal of maximisation of profits is considered to be a narrow outlook.

Profit maximisation is not the sole objective of business Essay Sample

The profit maximisation condition of the firm can be expressed as: In practice, firms attempt to manipulate consumer preferences by marketing devices such as advertising.

This means that, when total revenue equals total cost, the entrepreneur is earning normal profit, which is the minimum reward that keeps the entrepreneur providing their skill, and taking risks.

Thus the firm maximises its profits at M1 B price at the output level OM1. Techniques of production are given. The process through which the company is capable of increasing is earning capacity is known as Profit Maximization.

Not applicable to Oligopoly Firm: After all, they are not greedy calculating machines. The accounting definition of profits is rather different because the calculation of profits is based on a straightforward numerical calculation of past monetary costs and revenues, and makes no reference to the concept of opportunity cost.

Super-normal economic profit If a firm makes more than normal profit it is called super-normal profit.The possibility of higher expected yields are associated with greater risk to recognize such a balance and wealth maximisation is brought in to the analysis.

In such cases, higher capitalization rate involves. Profit maximisation is the most likely objective for a firm whose owners are involved in day-to-day decision making, such as with small and medium sized enterprises (SMEs).

The number of firms and profits. Profit maximisation is not the sole objective of business Essay Sample. Profit maximisation has been one of the main aims of the firms.

The generally accepted view is the long run will wish to maximize profit. Social responsibility, profit maximisation and the small firm owner-manager Article in Journal of Small Business and Enterprise Development 8(2) ·. Jul 24,  · Profit Maximization - Merits of Profit Maximization.

and the success of a business. Profit, safeguarding against the possibility of insolvency. If a business wills itself to stay in this. Profit Maximisation And Business Behavioural Patterns.

Print Reference this. Published: 23rd March, Every business holds 'profit maximisation' in high regards but 'profit maximisation' does not always influence a business's behavioural patterns.

It does not take notice of the possibility of negative relationships between owners.

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An analysis of the possibility of profit maximisation in business
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