Profit maximisation & its alternatives

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  • 1. Presented by Group No-9
  • 2.
    • Sapna Chodimella……………………… 08
    • Mohammad Khalid Khan………….. 18
    • Vani Mangalur………………………….... 28
    • Frenzina Rodrigues……………………. 38
    • Shamiya Shaikh…………………………. 48
    • Swapnil Wani……………………………… 58
  • 3.
    • Profit is the making of gain in Business activity for the benefit of the owners of the business.
    • Two Important Concepts Of Profit :-
    • Accounting Profit – Profit is the surplus of revenue over and above all paid-out costs, including both manufacturing and overhead expenses.
    • Economic Profit – It is the difference between a Company’s total revenue and its opportunity cost.
  • 4.
    • Measure Of Performance
    • Premium To Cover Costs Of Staying In Business
    • Ensuring Supply Of Future Capital
  • 5.
    • Profit Maximization is the process by which a firm determines the Price and Output level that returns the greatest Profit.
    • Approaches To Profit Maximization :-
    • Total Revenue – Total cost Method
    • Marginal Revenue – Marginal Cost Method
  • 6. Types Of Profit
    • SuperNormal Profit
    • Normal Profit
    • Negative Profit or Loss
  • 7.
    • Preventing Entry Of Competitors
    • Projecting A Favourable Public Image
    • Restraining A Trade Union Demand
    • Maintaining Customer Goodwill
  • 8. METHOD OF PROFIT MAXIMISATION (in short run): There are 2 Approaches; Approach-1: By using Total Cost & Total revenue Curves ( This is simple approach) Profit maximization under short run (by using total curves): This is the period in which one or more factors are fixed in supply. Total profit (TII) = TR-TC
  • 9.  
  • 10. Approach-2: Marginal cost, Average cost & Marginal -Revenue, Average Revenue curves: (This is complicated but very useful to compare profit maximization under different market condition) Stage-1: To find profit maximizing output, we use MC& MR curves. To maximize profit Marginal Revenue mist be equal to Marginal Cost. i.e. MR=MC Why profit maximize when MR=MC? To find out the answer to this question, observe when MR=/= (not equal to) MC.
  • 11. MC MR 1 3 2 5 3 10 4 Profit is maximum at the output level of 3, where MR=MC
  • 12. Output Below3: MR exceeds MC; It means by additional production output higher additional revenue then MC Therefore Total profit can increase by increasing production . Output above3: MC exceeds MR; It adds more to the cost then revenue hence reduce profits. Therefore profit can increase by cutting back on production .
  • 13.
    • FUNDAMENTALS :
    • PROFIT = TR-TC
    • Total Revenue (TR): This is the total income a firm receives.
    • Total cost: refers to the total expense incurred in reaching a particular level of output; if such total cost is divided by the quantity produced, average or unit cost is obtained.
    • MARGINAL REVENUE:IS THE CHANGE IN REVENUE WHICH COMES FROM SELLING AN ADDITIONAL UNIT OF OUTPUT.
    • MARGINAL COST:IS THE CHANGE IN COST WHICH COMES FROM PRODUCING AN ADDITIONAL UNIT OF OUTPUT.
  • 14. MC AC AR MR Y P O X S M R Q E OUTPUT COST&REVENUE
    • THE FOLLOWING FIG SHOWS :
    • AC AND AR ARE THE AVERAGE COST AND REVENUE COST CURVES.
    • MC IS THE MARGINAL COST AND MARGINAL REVENUE.
    • WHEN OUTPUT REACHES OM,MARGINAL REVENUE EQUALS MARGINAL COST AT E.
    • HENCE PQRS IS THE PROFIT.
    • BEYOND OM OUTPUT ,THE MC CURVE IS HIGHER THAN MR CURVE WHICH INDICATES LOSSES.
    • THUS PROFITS ARE MAXIMUM WHEN MR=MC.
  • 15.
    • Divorce of ownership from control:
    • Difficulties in pursuing profit maximisation:
    • Problems in the measurement of profit:
    • Social responsibility of the firm:
    • Deliberate limitation of profits:
    • Aversion for business expansion:
  • 16.
    • Profit is indispensable for a Firm’s survival
    • Achieving other objectives depends on firm’s ability to make profits
    • Evidence against Profit Maximization is ambiguous
    • Profit Maximization objective has greater Predicting Power
    • Profit is a more reliable measure of firm’s efficiency
  • 17.
    • Salary & other earnings of managers are closely related to sales revenue than to profits.
    • Banks & Financial Corporations look at Sales Units while financing the corporation.
    • Trend in Sales Revenue indicates Performance of Co.
    • Increasing Sales Revenue is a prestige issue for managers, while Profit is related to Owners
    • Profit maximization is a difficult objective to fulfill consistently, over time & at the same level.
    • Growth is another proof of Competitive spirit of the firm.
  • 18.
    • Managers maximize the firms balanced growth rate .
    • G= GD-GC
    • Williamson’s Hypothesis of Maximization of managerial utility function.
    • The managers seek to maximize their own utility function subject to minimum level of profit.
  • 19.
    • The main objective of the firm’s is to achieve satisfying profit .
    • Rothschild's Hypothesis of Long-Run survival and Market share Goals.
    • The Primary goal of the firm is Long run survival.
    • Attainment and Retention of constant market share is also suggested as an additional objective of the firms.
  • 20.
    • Profit maximization in long run.
    • Securing a constant market share.
    • Avoidance of risk caused by unpredictable behaviour of new firms.
  • 21.
    • Although profit maximization remains the main hypothesis in economic analysis, there is no reason to believe that profit maximization is the only objective that the firms persue. Modern organizations , in fact, follow multiple objectives as the various economists have also postulated in their theories.
  • 22.