Evaluate Whether Profit Maximisation Is Always the Most Important Objective of Firms. (25 Marks)

In addition, firms may want to profit maximise and gain supernormal profits because it would attract potential competitors to join their market. This is because companies such as apple, gain too much supernormal profit, it attracts other firms, such as Samsung and Orange, to join their market and share their supernormal profits. So companies may want to sacrifice their profits in the short run to prevent unwanted competitors in joining their market in order to gain supernormal profits in the long run. However this only occurs in imperfect competition because most firms only make supernormal profits in the short run and normal profits in the long run. Also a non- maximising behaviour by a firm is usually disciplined by competition in the capital market rather by competition in the goods or products market. In the capital market, if the shareholders aren’t happy with the firm’s behaviour of non profit maximising, they would sell their shares and, if a firm’s level of profits is too low, the owners may sell their business to a new owner. This would then mean managers may want to

When the firm is trying to maximize their stock they are trying to develop new products and technology which leads to producing products that the customer (society) needs.

MNEs try to maximize profits. How could MNEs maximize profits and minimize profit volatility at the same time?

Throughout this task I will do my best to explain how firms determined to maximize profit do just that. Specifically I will delineate how such firms choose the optimum level of production or output for the goods they produce and how they behave with respect to various elevations of marginal revenue. In my attempt it will be appropriate for me to clarify the definitions of various economic terms in order to assure a proper understanding of my thoughts on this topic, I will provide these definitions throughout.

In order for any business to be successful they would need to know how to make the most profit for the goods they are producing and selling.

Helen’s is an upmarket fashion boutique store in Sydney’s east. Falling sales have been reflected by surveys that reveal consumers view the business as outdated and no longer relevant to consumers’ needs. Strong competition in the area has placed considerable pressure on pricing. The business’s target market, 50-65 year old females, no longer dominated the now younger demographic character of the area.

If a company can make a profit with low expenses, then they have succeeded in profit maximization. Companies strive to make a profit, but if they can reach their profit maximization then that’s even better.

2.5 Analyze the relationship between productivity and the cost of production. 2.6 Analyze the effect of changes in the supply of and demand for factors of production on the price of inputs. 2.7 Analyze the effect of changes in marginal revenues and costs on a firm’s profit-making potential.

The firm's profit maximizing output is less than the output associated with minimum average cost. The firm’s demand curve is not flat but is downward sloping. Thus in the long-run the demand curve will be tangential to the long-run average cost curve at a point to the left of its minimum. The result is excess capacity.”

Therefore monopolies aim to produce more units of their good in order to maximize their profits. Reversely, if they produce at a high a level of output, marginal costs are greater than marginal revenue, and they therefore increase their profits by reducing the number of items produced (Mankiw, 2014).

In the short run the perfect competition equilibrium can be found by graphing the marginal cost (MC), average total cost (ATC) and marginal revenue (MR) curves. In perfect competition the price is equal to the average revenue, which is equal to the marginal revenue and these are all constant, giving an infinitely elastic demand curve for the firm. The demand curve is “perfectly price elastic” due to the homogeneity of the products supplied, where each supplier, as a price taker, must focus on a single price. Given this, the only choice a supplier has in the short run is how much to produce. For profit maximisation to occur marginal costs (supply curve) must equal marginal revenue (demand curve). Profit maximisation is assumed to mean the maximisation of normal economic profit (i.e. revenue that covers the

Any company aim is to increase the profit for the share holders, receive dividend (distribution of profits) in order to invest again or issue shares (selling part of the capital, method mainly used by big business to avoid asking bank loans and have liquidity – cash flow), take bank loans, while non for profit organization aim, is not to gain profit or save money but to spend for social purposes, explaining how the money was spent. There are four main types of charities structure; Charitable incorporated organization, Charitable Company,

Are the forces at work in industry a given from a firm’s point of view?

The left-hand side of this expression is the proportion of the price which is a markup over marginal cost. It is known as the “price-cost margin.” Historically, it is also known as the “Lerner Index.” The price-cost margin matters because, in the standard neoclassical model, a competitive industry prices at marginal cost. Thus, the price-cost margin can be viewed as a measure of the deviation from marginal cost. A price-cost margin of zero means that price equals marginal cost, which is the competitive solution. A price-cost margin of ½ means the marginal cost is marked up by 100 percent—half the price is markup. The formula shows that profit maximization entails a price-cost margin of 1/H. If costs are not negative, the left-hand side is not greater than one, and profit maximization entails an elasticity at least as large as one. What happens when the elasticity is less

Most companies are profit oriented. Companies survive and live on profit. Even governmental institutions, NGO's and NPO's are profit oriented, what they do with profit is different though. Saying this means that companies seek always to be at a position where profit is maximized. As we know by now this happens when MC=MR but this is an always changing point as supply and demand are dynamic, effectively meaning that if firms get it right once they can't just do the same eternally, they still need to adapt to every market factor as a new change is a new reality all together that needs to be studied and addressed. All