Profit Maximisation

Topics: Profit maximization, Economics, Marginal cost Pages: 5 (1323 words) Published: May 8, 2011
In this essay I have been asked to carry out basic research for Shamrock Components Plc by using theories I will assess the factors that would influence the decision of the senior managers and whether they should join the joint venture or not.

Profit maximisation

Profit maximisation is the process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem. The total revenue - total cost method relies on the fact that profit equals revenue minus cost, and the marginal revenue - marginal cost method is based on the fact that total profit in a perfectly competitive market reaches its maximum point where marginal revenue equals marginal cost.

Basic definitions
there are two different types of costs every business has and these costs are:

➢ Fixed cost
➢ Variable cost.

Fixed costs are something Shamrock would have to pay even if their production level is zero, and some of these costs are:

➢ Rent
➢ Wages
➢ General upkeep

As the variable costs changes with the level of production and output, so if Shamrocks production levels are high then the variable cost will increase as well, higher production at Shamrock would mean sales and profit will increase.

To maximise Shamrocks profit the managers of the company will have to target the right areas to promote and sell their product, selling more product will increase the sales for the company and the return will increase the profit for the company. Also the production department need to produce good quality products to gain reputation for the company and boost the sales, because if the product quality is poor then competitors will take advantage and attract the right customers to their products and service.

Maximising profit for the company is the aim for every manager in each department of the company and Shamrocks staff need to think the same and provide the best service they can to its customers also the right product to shamrocks customers so existing customers are repeating business with Shamrock.

Some companies have commission based income which helps the employees mainly managers, which basically means each employee has to reach a target to make commission on each sale they make, to achieve their target every employee try their best to make much sales as they can to increase their wage and bonus for being the top sales person in the company.

Shamrock should try something like this as this would benefit the company and the employee, as the company will increase in its profits and the employee would get the reward for their hard work and effort they have put into selling the 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, by finding out how much it will cost for production and how much they will sell the product for so they have a very good idea about the profit, and they are not loosing out on their product, to do that they have to work out all the fixed costs and the variable costs, then take out total costs from the sales to find out their profit figures.

By knowing all the business figures would give Shamrock an idea of what they are spending on each product and what they are earning on each product so they can find out their profit and compete against the competitors of the product by offering better quality product and reducing their product prices if possible in anyway, which can be reduced by the production cost.

Sales Revenue Maximisation

Businesses think more about maximising the sales revenue then the profits as sales are the main priority and company only makes profit if the sales for the company are healthy, if shamrock have lower sales revenue then they will not make enough...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Profit Maximisation Theory Essay
  • Profit Maximization Essay
  • Essay about Marginal Cost and Total Profits
  • Profit Maximization Model Essay
  • Essay on Marginal Analysis and Profit Maximization
  • Essay about Topic: Profit Maximization of a Firm.
  • Revenue (vs) Profit Maximizers (Apple vs Samsung) Essay
  • Essay about Profit Maximising Midel

Become a StudyMode Member

Sign Up - It's Free