Presented by Group No-9

Sapna Chodimella……………………… 08Mohammad Khalid Khan………….. 18Vani Mangalur………………………….... 28Frenzina Rodrigues……………………. 38Shamiya Shaikh…………………………. 48Swapnil Wani……………………………… 58

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.

• Measure Of Performance

• Premium To Cover Costs Of Staying In Business

• Ensuring Supply Of Future Capital

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

Types Of Profit

SuperNormal Profit

Normal Profit

Negative Profit or Loss

Preventing Entry Of Competitors

Projecting A Favourable Public Image

Restraining A Trade Union Demand

Maintaining Customer Goodwill

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

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=MCWhy profit maximize when MR=MC?To find out the answer to this question, observe when MR=/= (not equal to) MC.

MC

MR1 32

5

3

10

4

Profit is maximum at the output level of 3, where MR=MC

Output Below3:

MR exceeds MC; It means by additional production output higher additional revenue then MCTherefore 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.

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.

MC

AC

ARMR

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.

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:

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

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.

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.

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.

Profit maximization in long run.

Securing a constant market share.

Avoidance of risk caused by unpredictable behaviour of new firms.

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.