Profit Maximization Model
SAMPLE ANSWER FOR QUESTION 5
Profit-making is one of the most traditional, basic and major objectives of a firm. Profit-motive is the driving-force behind all business activities of a company. It is the primary measure of success or failure of a firm in the market. Profit earning capacity indicates the position, performance and status of a firm in the market. In spite of several changes and development of several alternative objectives, profit maximization has remained as one of the single most important objectives of the firm even today.
Both small and large firms consistently make an attempt to maximize their profit by adopting novel techniques in business. Specific efforts have been made to maximize output and minimize production and other operating costs. Cost reduction, cost cutting and cost minimization has become the slogan of a modern firm. It is a very simple and unambiguous model. It is the single most ideal model that can explain the normal behavior of a firm.
Main propositions of the profit-maximization model
The model is based on the assumption that each firm seeks to maximize its profit given certain technical and market constraints. The following are the main propositions of the model. 1. A firm is a producing unit and as such it converts various inputs into outputs of higher value under a given technique of production.
2. The basic objective of each firm is to earn maximum profit.
3. A firm operates under a given market condition.
4. A firm will select that alternative course of action which helps to maximize consistent profits
5. A firm makes an attempt to change its prices, input and output quantity to maximize its profit.
The model
Profit-maximization implies earning highest possible amount of profits during a given period of time. A firm has to generate largest amount of profits by building optimum productive capacity both in the short run and long run depending upon various internal and external factors and forces. There
Profit-making is one of the most traditional, basic and major objectives of a firm. Profit-motive is the driving-force behind all business activities of a company. It is the primary measure of success or failure of a firm in the market. Profit earning capacity indicates the position, performance and status of a firm in the market. In spite of several changes and development of several alternative objectives, profit maximization has remained as one of the single most important objectives of the firm even today.
Both small and large firms consistently make an attempt to maximize their profit by adopting novel techniques in business. Specific efforts have been made to maximize output and minimize production and other operating costs. Cost reduction, cost cutting and cost minimization has become the slogan of a modern firm. It is a very simple and unambiguous model. It is the single most ideal model that can explain the normal behavior of a firm.
Main propositions of the profit-maximization model
The model is based on the assumption that each firm seeks to maximize its profit given certain technical and market constraints. The following are the main propositions of the model. 1. A firm is a producing unit and as such it converts various inputs into outputs of higher value under a given technique of production.
2. The basic objective of each firm is to earn maximum profit.
3. A firm operates under a given market condition.
4. A firm will select that alternative course of action which helps to maximize consistent profits
5. A firm makes an attempt to change its prices, input and output quantity to maximize its profit.
The model
Profit-maximization implies earning highest possible amount of profits during a given period of time. A firm has to generate largest amount of profits by building optimum productive capacity both in the short run and long run depending upon various internal and external factors and forces. There