ECON 600 Lecture 3: Profit Maximization I. The Concept of Profit Maximization Profit is defined as total revenue minus total cost. Π = TR – TC (We use Π to stand for profit because we use P for something else: price.) Total revenue simply means the total amount of money that the firm receives from sales of its product or other sources. Total cost means the cost of all factors of production. But – and this is crucial – we have to think in terms of opportunity cost‚ not just explicit
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The primary goal of financial management regarding corporations should be to maximize shareholder wealth on the whole. If management was to only concentrate on profit maximization‚ they would more than likely run their corporations into the ground. The very existence and concept of a corporation is beneficial to business in numerous ways. First and foremost‚ corporate status helps release management from possible enourmous financial liability issues. Second‚ shareholders are the key of checks and
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Below is a free essay on "Fin/370 Final Exam One Of Them" from Anti Essays‚ your source for free research papers‚ essays‚ and term paper examples. 1. The goal of the firm should be the maximization of profit. (True/False) TRUE It should be FALSE. The goal of the firm should be maximization of shareholder wealth. 2. For the risk-averse financial manager‚ the more risky a given course of action‚ the higher the expected return must be. (True/False) TRUE 3
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Profit Maximization Marginal revenue is the change in revenue which comes from the sale of an additional unit of output. The relationship with total revenue is that total revenue is used in the formula to calculate marginal revenue. A company can calculate marginal revenue by dividing the change in total revenue with the change in output quantity. Because of demand‚ as production quantity increases the revenue per unit will decrease. On the other hand‚ marginal cost is the change in the total
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1. What are some of the problem involves in the use of profit maximization as the goal of the firm? How does the goal of maximization of stockholders wealth deal with doe’s problem? The goal of profit maximization ignores two major factors which are timing and uncertainly‚ it is the cause of the problem of a firm. Using profit maximization project and investments are compared by examining expected values‚ not whether one project is riskier than the other. Profit maximization also ignores the timing
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Between Wealth Maximization and Profit Maximization Profit maximization is a traditional approach which is claimed to be the main goal of any kind of business‚ small or big. Profit equals to revenues substracted by expenses. It is needed for business survival; pay rents‚ employees salary‚ capital‚ research and development. If a business doesn’t yield any profit‚ it can be said that they’re on danger in term of survival because profit is the main objective. Wealth maximization is the new approach
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Problem of Rising Prices in India Out of the many problems that are facing India‚ the problem of rising prices is the most intricate. Although it is affecting universally‚ yet it has rendered the life of the poor impossible to pull on and the number of poor in India is far greater than the rich. So it is the problem of the whole country. Prices of all commodities are rising almost daily. For what you buy a commodity today‚ you cannot have it on the same price a few days after. The hardest hit on
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2) Explain why a profit maximizing firm produces the output that equates marginal revenues to marginal costs (MR=MC). In a perfectly competitive market‚ producers are price-takers and consumers are price-takers. There are many producers‚ none having a large market share and the industry produces a standardized product‚ also free entry and exit of the industry. They produce using the optimal output rule: produce where marginal revenue equals marginal cost as Smith (1904) demonstrated. Figure
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The photos of ‘Shadows’ on the opposite page are images taken by me and other artists of the different types of shadows you can get. With the images that I found on the Internet‚ the shadows range from those that are created by people to those created by objects. My favourite one is the one with expressions painted in the sand with a shadow of somebody’s face above it. I like this one because it’s simple but effective and one that you can recreate easily yourself. One of my other favourites is
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2.6 Is Shareholder Value Maximization the Right Objective? In their widely cited book The Value Imperative—Managing for Superior Shareholder Returns‚ McTaggart‚ Kontes‚ and Mankins (1994) write‚ Maximizing shareholder value is not an abstract‚ shortsighted‚ impractical‚ or even‚ some might think‚ sinister objective. On the contrary‚ it is a concrete‚ future-oriented‚ pragmatic‚ and worthy objective‚ the pursuit of which motivates and enables managers to make substantially better strategic and organizational
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