product to the customers.
Profit maximization is the process by which a firm determines the price and output level that returns the greatest profit, where marginal cost is equal to the marginal revenue. (Sloman 2000)
This is where the price for the products or the service company needs to set up...
profit, it may miss opportunities for investment and expansion.
Expectation and Goodwill
You also need to consider consequences of profit maximization. If a company pursues a profit maximization strategy, it creates an environment where price is a premium and cutting costs is a primary goal. This...
. P QD
* P of A, quantity bought of substitutes for A
* Larger consumers income the greater the QD for normal goods.
EFFICIENCY, PRICE AND VALUE:
When budget is allocated to maximise utility you are using resources efficiently
* You are on your demand curve for...
optimal output level is Q=20. At this output, the firm can
sell its output at P=12 and the average variable cost is £10 per unit. The firm has fixed costs of
a) What will be the profit for this firm if it decides to produce 20 units?
How would your answers to part a) and b) be...
* generates revenue where y sellyour products
* firms inputs are purchased through markets influence firm’s level costs
Government intervention can seek to influence firms’ costs and revenues, boosting them when firm operates in the interest of society & decrease profits when activities are...
2 firms should react to each others prices, it shows that you should lower yourprice below your rivals until eventually reaching equilibrium at P = P where price equal MC and the firms split the market demand and make normal profits and is equivalent to a social optimum (Carlton & Perloff, 2005...
produce in order to maximiseprofits. To solve this problem, she needs one more cost concept: marginal cost. Marginal cost is how much total costs increase when you produce one more unit of output. The marginal cost of one more unit of output depends on how much output has already been produced. To...
can often direct their efforts to increasing output and sales of high contribution margin products and thereby maximise the contribution towards fixed costs and profits. Unfortunately, it is not always desirable to attempt to maximise the sales of high contribution margin products, at the expense of...
be qualitative (consumer interested in highest form of quality)
• Consumer needs should be the focus
• Improve quality levels
• Make profit through volumes
Economic Scale – Big volume, Less unit price
Sales Orientation (consumers are reluctant to purchase)
• Needs are...
ticket price to ensure a full house with capacity being 25,000?
Total cost function
When determining price and output levels we need to bear in mind the cost and revenue behaviours. These can be expressed as equations and graphed (as you will have seen in your earlier studies on...
through the minimum points of the average total and average variable cost curves. This is a mathematical relationship which is difficult to explain. 3.4; Output decisions in the short run. The priceyousellyour products for should always be related to your fixed and variable costs. If yourprice is...
revenue and expenditure
For Outcome 1, you will need to be able to:
demonstrate an understanding of cost in either the short or long term
assess the characteristics, price and output behaviour of two market structures
explain two roles of profit maximisation
analyse two alternatives...
constant a is calculated as follows. Current quantity at current price ⎛ ⎞ a = $(current price) + ⎜ × $b ⎟ Change in quantity when price is changed by $b ⎝ ⎠ You will need to be able to solve simple examples like those that follow.
4.3.1 Example: MC = MR
MOC makes and sells a copyrighted, executive...
price taker; they are too small to have an influence over the market price. As such, each firm faces a perfectly elastic demand for its output at the market price (ie. At the market price, firms can sell as many units as they can produce), causing P=MR under perfect competition. Due to the law of...
sell based on the needs to maximiseprofit. A complex market system will regulate the decisions of both parties to determine market equilibrium. The concept of demand and supply is the basic concept in market economy. The price system will determine how resources, products, and services are...
life cycle, it’s important to set a price and output level that maximisesprofits in the short or long run. This would consider all aspects of economies of scale and Diminish return limitations
Firms need to define their competitive value that will allow them to survive in the market...
Fixed costs £155,000
You are required to calculate:
i) Total contribution
ii) Break- even point
iii) The number of units the company needs to sell to make a profit of £150,000
3. Euro ltd produces a product the ECU which has the following costs:
£ per unit
Direct labour 1.20...
market. So, all the films do not need to think of the prices of their output.
As a consumer, you will find that the price of goods are lower and reasonable because there are a lot of substitution. Their quality and price be all the same and those ineffecient producers will lose out and to be get...
to produce at an output level that is lower than that in perfect competition, and at a higher price to the consumer. This control over the level of output, and therefore price, gives the monopolist the opportunity to make large profits. You will compare the performance of monopoly against that of...
quantity is assumed to be linear. P = a – bx Where P = price x = quantity demanded a = price at which demand is nil b = amount by which the price must fall to sell one more unit of the product
The output level to maximiseprofit is found when MR = MC. The output level to...