Preview

Economics objectives of firms

Satisfactory Essays
Open Document
Open Document
929 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Economics objectives of firms
12-Sep-13

Objectives of firms

1. Profit Maximisation
In neo-classical economics it is assumed that the interest of owners or shareholders are the most important.
Just as consumers attempt to maximise utility, shareholders main motivation is to maximise their gain firm the company.

Therefore, one of the main objectives of firms is to maximise profit. Profit is the reward for the risk-bearing function of the entrepreneur. The firm is in equilibrium, and is maximising profit, when it is producing the level of output for which MC=MR and the MC curve cuts the MR curve from below.
MC = MR
2

By Jean-François Tuyau

Theory of Production

By Mr. Jean-François Tuyau

1

12-Sep-13

1. Profit Maximisation
Long Run Profit Maximisation.
In some cases, firms may sacrifice profits in the short term to increase profits in the long run. For example, by investing heavily in new capacity, firms may make a loss in the short run, but enable higher profits in the future.

3

Theory of Production

By Mr. Jean-François Tuyau

2. Minimise Cost
Another objective of the firm can be to minimise cost.
The firm is said to be minimising cost of production when:
i.
It produces at the optimum level of output
It is therefore achieving productive efficiency
• It uses a mimimum amount of resources to produce a given level of output, or
• It produces the maximum output possible with a given amount of resources

Cost
AC

qopt
4

By Jean-François Tuyau

Theory of Production

Qty

By Mr. Jean-François Tuyau

2

12-Sep-13

2. Minimise Cost ii. When it uses the least-cost combination of factor of production: The Marginal Physical Product
MPPF3
MPPF1
MPPF2
=
=
PriceF3
PriceF1
PriceF2

5

Theory of Production

By Mr. Jean-François Tuyau

3. Maximise Sales Revenue
Sales Revenue can be maximised when the firm produces the level of output for which Marginal Revenue is equal to zero.

TR

MR=0 ; TR is at max
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Good Essays

    EGT1: Task 1
    • 514 Words
    • 3 Pages

    EGT1: Task 1

    If the marginal cost is more than marginal revenue then the firm needs to focus on reducing the cost of production and increase the cost at which the price is sold till the firm’s marginal revenue is equal to marginal cost.…

    • 514 Words
    • 3 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    WGU EGT1 Task 1
    • 746 Words
    • 3 Pages

    WGU EGT1 Task 1

    Profit maximization in terms of total revenue to total cost can be approached in two different ways. The first is to take total revenue and total cost for a time period and subtract total cost from total revenue for each unit produced to determine how many units produced would yield the highest profit. To do this in this scenario I have illustrated it in the chart below.…

    • 746 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Better Essays

    Egt1 Task1 Essay Example
    • 650 Words
    • 3 Pages

    Egt1 Task1 Essay Example

    In this essay the relationship between marginal revenue and marginal cost and the importance of these concepts in the business world to help explain profit maximization. Profit maximization is the process which determines the price and output level that has the greatest profit return. The process can be approached in various ways.…

    • 650 Words
    • 3 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    EGT1 Task1
    • 369 Words
    • 2 Pages

    EGT1 Task1

    A profit maximizing firm will often determine its optimal output level by finding the point where marginal cost is equal to marginal revenue. Producing an additional unit of product is then equal to the amount of extra revenue costs. This is the point or peak of the firms potential profit maximization. Any additional units produced after this point will result in costing the firm money, resulting in a negative or zero marginal revenue.…

    • 369 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Home Farm Is One of Many Small Firms Producing Lettuces and Attempting to Maximise Profits. Explain the Circumstances in Which Home Farm Might Make Supernormal Profits in the Short Run, but Only Normal Profits in the Long Run. (15 Marks)
    • 550 Words
    • 3 Pages

    Home Farm Is One of Many Small Firms Producing Lettuces and Attempting to Maximise Profits. Explain the Circumstances in Which Home Farm Might Make Supernormal Profits in the Short Run, but Only Normal Profits in the Long Run. (15 Marks)

    Profits will be maximised where the difference between total revenue and total cost is at its greatest shown in the diagram below at the level of output where Marginal Cost (MC) = Marginal Revenue (MR).…

    • 550 Words
    • 3 Pages
    Good Essays
    Read More
  • Better Essays

    Hrm 531 Week 6 Knowledge Check
    • 998 Words
    • 4 Pages

    Hrm 531 Week 6 Knowledge Check

    All firm sets MR = MC to maximize profit. Under perfect competition, MC = P; for example, the marginal cost pricing rule remains.…

    • 998 Words
    • 4 Pages
    Better Essays
    Read More
  • Good Essays

    Business Studies Extended Response
    • 1278 Words
    • 6 Pages

    Business Studies Extended Response

    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.…

    • 1278 Words
    • 6 Pages
    Good Essays
    Read More
  • Good Essays

    ECON545 Business Economics
    • 993 Words
    • 4 Pages

    ECON545 Business Economics

    Monsanto is a multinational agricultural biotechnology corporation. Monsanto has been under fire for years from consumer groups including- green peace, mothers against monsanto, March against monsanto, and a number of other groups. The primary issue with Monsanto is that they claim there genetically Modified Organism (GMO) crops will feed the growing world, because they will outperform organic crops. Over time there is great evidence that their claims are only empty promises.…

    • 993 Words
    • 4 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    WK4 ASA: Managerial Economics and Business Strategy - Chapter 3
    • 461 Words
    • 2 Pages

    WK4 ASA: Managerial Economics and Business Strategy - Chapter 3

    1How much would the firm’s revenue change if it lowered price from $12 to $10? Is the demand elastic or inelastic in this range?…

    • 461 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    ECO2013 QUIZ V W2004 version2 sol
    • 2126 Words
    • 13 Pages

    ECO2013 QUIZ V W2004 version2 sol

    DO NOT forget to write your name and your student id on the exam booklet.…

    • 2126 Words
    • 13 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Economics and Production Possibilities Curve
    • 452 Words
    • 2 Pages

    Economics and Production Possibilities Curve

    1. Which fundamental economic question requires society to choose the technological and resource mix used to produce goods?…

    • 452 Words
    • 2 Pages
    Good Essays
    Read More
  • Best Essays

    Business Economics
    • 2828 Words
    • 12 Pages

    Business Economics

    The economic downturn and competition from rival Costa Coffee deepened the UK losses of coffee chain Starbucks to £9.9m in the year to September 2009, compared with a pre-tax loss of £1.9m in the previous year.…

    • 2828 Words
    • 12 Pages
    Best Essays
    Read More
  • Good Essays

    Economic Goals
    • 500 Words
    • 2 Pages

    Economic Goals

    Efficiency is one of the most important goals of an economic system. An efficient economic system is one that gets the most out of an input with a little waste as possible. Another way of explaining this model would be to use to smallest amount of resources to carry out the result that is wanted. This is a theory that is almost universally accepted. The reason that people agree with it is quite simple. Nobody would want to use more of something to produce less. There is no conceivable reason to favor a more wasteful way of producing something.…

    • 500 Words
    • 2 Pages
    Good Essays
    Read More
  • Good Essays

    Economics and Business Strategy Mcq's
    • 4894 Words
    • 20 Pages

    Economics and Business Strategy Mcq's

    MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Economics is the study of the ________ people make to attain their goals, given their ________ resources. A) decisions; household B) purchases; unlimited C) income; available D) choices; scarce 2) Which of the following is what economically rational people do? A) Respond to economic incentives. B) Weigh the benefits and costs of all possible alternative actions. C) Use all available information as they act to achieve their goals. D) Economically rational individuals do all of these. 3) Which of the following best describes the assumption about human behaviour that economics makes? A) Economics does not make assumptions about human behaviour, as human behaviour changes a lot. B) Economics assumes individuals act rationally all of the time and in all circumstances. C) People weigh factors such as religion, envy, compassion and anger in all the decisions they make. D) Assuming rational behaviour is useful in explaining the choices people make, even though people may not behave rationally all the time. 4) In economics, an optimal decision involves carrying out an activity up to the point where: A) the marginal benefit of the activity is equal to the marginal cost of the activity. B) the opportunity cost of the activity is negative. C) the marginal benefit of the activity is greater than the marginal cost of the activity. D) the opportunity cost of the activity is zero. 5) Which of the following is correct with respect to how firms, in reality, determine the optimal level of production? A) Firms often have to make careful calculations using marginal analysis to determine the optimal level of production. B) Profit maximising output is found where marginal benefit is as much larger than marginal cost as possible. C) The optimising rule of economics has no relevance to operating a business, only to individuals. D) It is very…

    • 4894 Words
    • 20 Pages
    Good Essays
    Read More
  • Good Essays

    The Economic Problem and how it Affects Society
    • 473 Words
    • 2 Pages

    The Economic Problem and how it Affects Society

    What to produce - Firms must decide which production combination of goods and services will involves the least cost but result in the largest amount of produce…

    • 473 Words
    • 2 Pages
    Good Essays
    Read More

Related Topics