In modern, gigantic corporations little attempt is made either by individuals or by the groups to maximize profits. It should be noted that the firm is not only a producer but a consumer also. As they are not intending to earn a profit, nonprofits usually have significant tax advantages over for profit-making businesses. In this regard it may be noted that this kind of consumption does not go against profit-maximization; profits are first maximized and then spent on non-essential goods. Opportunities to get grant funding and lower costs on such things as postal service fees are also advantages. The profit shall be maximum only at that level of output at which marginal cost equals marginal revenue. How much output shall be most profitable for it? They must do everything possible to increase sales and reduce costs in order to survive in their competitive environment. They must do everything possible to increase sales and reduce costs … This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. Kokemuller has additional professional experience in marketing, retail and small business. Hypothesis of Profit-Maximization: Advantages, Disadvantages and Approaches! There are certain advantages and disadvantages to consider when looking at the structure of a non-profit organization that go beyond tax exemption. In large multi-branch firms, the practice is common to encourage the branches to compete both in buying and selling. 2. Leaders of profit-making businesses also typically have more control over the business and investment decisions they make for their companies while trying to make money. In the case of small firms facing strong competition from others, they are forced to act as profit maximizers. Profitable businesses also have to deal with heightened 21st century expectations that they balance profits with social and environmental responsibility. Thus a firm is in equilibrium when it is getting the maximum profit. 1. He has been a college marketing professor since 2004. This is because the greater the number of owners, the lesser is the power in each hand. In general, the government and donors like to see most funds go to services and not administrative expenses. From the above discussion, we can sum up these two approaches of profit-maximization as under: 1. Cloudflare Ray ID: 5ed8cefa4c9bcdbf The tax status may extend to the state level as well. There will be a particular combination of total revenue and total cost at which the firm’s profit shall be the maximum. Advantages of Profit-Maximization Hypothesis: 1. Welcome to EconomicsDiscussion.net! He holds a Master of Business Administration from Iowa State University. Privacy Policy3. Completing the CAPTCHA proves you are a human and gives you temporary access to the web property. Content Guidelines 2. Here is a look at the key points to consider. In this way, most entrepreneurs owning small firms have strong feeling to stick to a small firm and independent and exercise unrestrained power rather than to invite new owners and enlarge their profits. Since the monopolist ordinarily earns above-normal returns, why should he maximize? Therefore, in place of profit, efficiency is given top priority. In finding out the equilibrium output and the equilibrium price for a firm we assume: (2) The firm knows the prices or price, at which it can sell different levels of output, (3) The firm knows the behaviour of its costs as it changes its output, and. It is often seen that businessmen refrain from “integration or other forms of expansion not because they have been calculated to be unprofitable but because “jack of all trades, master of none or some such proverbial wisdom is always there.”. A nonprofit organization is a company that does not intend to earn a profit but typically needs funds to provide services or support to the public to meet various needs. Generally, the salaried managers cease to look for profits beyond the level which suffices to pay their salaries and keep the shareholders quiet and the owners are powerless to remedy the situation. that are legally forbidden to maximize their profits. In the table also we have calculated total profit through both the TR — TC approach and the MR = MC approach. Profit maximization is the single best assumption available and introduction of more “realistic” assumptions complicates the analysis considerably without adding much to the predictive power of the model. Raising funds is an ongoing challenge that is especially tough when the economy is poor. 80. If output were a unit more, profit would be reduced to Rs. It is seen that when the output is four units, the difference between total revenue and total cost is the maximum that is Rs. It has been pointed out that in the assumption of profit maximization; the concept of profit has never been unambiguously stated. Both the approaches give the same profit-maximizing output. A firm is in equilibrium when it finds no advantage in increasing or decreasing its output. The marginal cost and marginal revenue are Rs. As far as a monopolist goes he has no compulsions to maximize his profit. Greater Knoxville SCORE Chapter: For Profit Versus Non-Profit, LewRockwell.com; Profit Versus Nonprofit; Walter E. Williams; Sept. 23, 2010.

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