Profit maximisation & its alternatives

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

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 32
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
A
RMR
Y
P
O
X
S
M
R
Q
E
OUTPUT
C
O
S
T
&
R
E
V
E
N
U
E
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.