Goals of a corporate enterprise - Profit maximization

1. Goals of Corporate Enterprise
Dr. NGPASC
COIMBATORE | INDIA
Dr. N.G.P. ARTS AND SCIENCE COLLEGE
(An Autonomous Institution, Affiliated to Bharathiar University, Coimbatore)
Approved by Government of Tamil Nadu and Accredited by NAAC with 'A' Grade (2nd Cycle)
Dr. N.G.P.- Kalapatti Road, Coimbatore-641048, Tamil Nadu, India
Web: www.drngpasc.ac.in | Email: info@drngpasc.ac.in | Phone: +91-422-2369100
RAJAKRISHNAN M
Assistant Professor in Commerce CA

2. Dr. NGPASC
COIMBATORE | INDIA
Goals – Profit Maximization
Profits- Primary Measure
– Success – Business
Firms – Maximizing profit
– determine output –
maximum net revenue

3. Dr. NGPASC
COIMBATORE | INDIA
Goals – Profit Maximization
Calculated – Difference
between TR & TC or MR & MC
Find out – TR & TC of the firm
– different levels of output
Where – difference between
TR & TC = Maximum – The
level of output gives
maximum profit

4. Dr. NGPASC
COIMBATORE | INDIA
Goals – Profit Maximization

5. Dr. NGPASC
COIMBATORE | INDIA
Goals – Profit Maximization
AB is the maximum vertical
distance between TR and TC
and it shows maximum profit
OM is the output which
makes maximum profit

6. Dr. NGPASC
COIMBATORE | INDIA
Goals – Profit Maximization
According to the Principle
of MR and MC, a firm earns
maximum profits when its
MC=MR.
The MC is the net addition
made to the TC by
producing an extra unit of
the product and the MR is
the net addition made to
the TR by selling that extra
unit of output.

7. Dr. NGPASC
COIMBATORE | INDIA
Goals – Profit Maximization
A firm will not earn
maximum profits
unless an additional
unit of output brings
in as much money as
it costs to produce.
A rational manager
will therefore fix the
output of the firm so
as to equate MR with
MC. Profit
maximization by
equating MC with MR
is shown in Picture.

8. Dr. NGPASC
COIMBATORE | INDIA
Goals – Profit Maximization
AC is the ACC, AR is the
ARC, MC is the MCC,
MR is the MRC, MR
and MC meet at point
E.
The corresponding
output is OM units of
the product.
Suppose the output is
less than OM, the
profit cannot be
maximum.

9. Dr. NGPASC
COIMBATORE | INDIA
Goals – Profit Maximization
When the output is less than
OM, MR is greater than MC
and the firm can gain by
increasing the output.
When the output exceeds
OM, then MR is less than MC
and the firm is losing on the
marginal unit produced.
Hence, the most profitable
position is OM where
MR=MC.
The maximum profit is
represented by the shaded
rectangle PQRS. This is
maximum profit as MR=MC.

10. 10