Thursday, April 10, 2014

What is Profit maximization principle?

What is Profit maximization principle?
The profit maximization principle stresses on the fact that the motive of business firms to maximize profit is solely justified as being a method of maximizing the income of their shareholders.Firms may maximize profit by maximizing sales, stock price, market share or cash flow. In order to achieve maximum profit the firm needs to find out the point where the difference between total revenue and total cost is the highest.
The rules that apply for profit maximization are:i. increase output as long as marginal profit increasesii. profit will increase as long as marginal revenue (MR) > marginal cost (MC)iii. profit will decline if MR < MCiv. summing up (ii) and (iii), profit is maximized when MR = MC
For a clearer view and calculations and graphical representations of the goal of profit maximization go to the following link:

http://www.google.com.bd/search?hl=en&client=firefox-a&rls=org.mozilla:en-US:official&hs=Kr7&q=profit%2Bmaximization%2Bprinciple&start=10&sa=N

No comments:

Post a Comment