Additional Information In lieu of an abstract, here is a brief excerpt of the content: Introduction Theories of the firm and internal organisation have evolved from the traditional neo-classical theory of the firm to the modern theory of the firm which emphasises business conduct behaviour that includes pricing and non-price strategies with reference to profit maximization or new industrial economic organisation Traditional Neoclassical Theory of the Firm Despite the debate on the origin of the theory of the firm, many scholars trace it back to the s mainly through the works of Chamberlin and Robinson However, some aspects of the theory may even be traced back to Marshall or even Smith
Besides increasing revenues, a company can address other areas of the income statement to maximize profits. Reducing Cost of Goods Sold Cost of goods sold is used to quantify the total cost of tangible products sold to customers.
Direct materials and direct labor, among other costs, are critical components of the cost of goods sold calculation. By purchasing raw materials or stock from cheaper vendors, a company could reduce cost of goods sold and ultimately increase its net profit.
The same is true if direct labor is reduced and production remains at its previous level without any additional overtime expense. Releasing support personnel through rounds of layoffs or attrition is one way to increase immediate profits, but the company risks long-term profitability if cuts to personnel are too deep and the company doesn't find alternative ways to perform critical tasks.
When maximizing profits, many leaders focus on the short-term benefits of releasing employees and pay little attention to the impact on the remaining workers or new risks posed to their organization. Reducing Fixed Costs Fixed costs include things such as rent, insurance and certain utility expenses, among other costs associated with running manufacturing or service operations.
Business leaders can maximize profit by moving to smaller facilities, reducing insurance coverage or minimizing utility usage. Lowering Taxes Payable Finding methods to reduce taxable income is another way to increase profits.
It can be accomplished by taking new deductions, credits or exemptions if the business qualifies for them. Various tax strategies, such as income timing and income shifting, can reduce tax burdens in the current reporting period, but these strategies may increase tax burdens over the long term.
Taxes payable is one of the largest expenses on the balance sheet for most companies, making it an ideal payable to reduce.In economics, profit maximization is the short run or long run process by which a firm may determine the price, input, and output levels that lead to the greatest profit.
Neoclassical economics, currently the mainstream approach to microeconomics, usually models the firm as maximizing profit.
Chapter 9 Profit Maximization Economic theory normally uses the profit maximization assumption in studying the firm just as it uses the utility maximization assumption for the individual consumer.
This approach is taken to satisfy the need for a simple objective for the firm. This objective. This current short-run profit maximisation model of the firm has provided decision makers with useful framework with regard to efficient management and allocation of resources.
Profit is a difference between total revenue and total cost. Jul 22, · Category.
The economics of maximizing shareholder value. The economics of radical management. Goals.
The goal of a firm is to maximize shareholder value. Profit maximization can increase a company’s gains in the short term, but over the long run it can can have negative repercussions for employees, owners and community stakeholders. For firms with multiple objectives, both profit and social welfare maximisation are goals, but the way that they relate to one another differs.
Moving along the continuum towards social welfare, Hierarchical goals with priority to profit (3a) is a view that companies should set and order their end objectives in a hierarchy.
Profit maximisation has been one of the main aims of the firms. The generally accepted view is the long run will wish to maximize profit. Marginal Cost and Marginal Revenue can be used to find the profit maximising level of output. 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. This current short-run profit maximisation model of the firm has provided decision makers with useful framework with regard to efficient management and allocation of resources. Profit is a difference between total revenue and total cost.