What is profit maximization concept?

Profit maximisation is a process business firms undergo to ensure the best output and price levels are achieved in order to maximise its returns. Influential factors such as sale price, production cost and output levels are adjusted by the firm as a way of realising its profit goals.

What is the objective of profit maximization Mcq?

The profit-maximizing rule for a perfectly competitive firm is to produce the level of output where marginal revenue equals marginal cost.

What are the condition of profit maximization?

The Profit Maximization Rule states that if a firm chooses to maximize its profits, it must choose that level of output where Marginal Cost (MC) is equal to Marginal Revenue (MR) and the Marginal Cost curve is rising. In other words, it must produce at a level where MC = MR.

Why profit maximization is not the main objective of a firm?

Choice of more worthy projects lies in the study of time value of future flows of cash earnings. The interest of the firm and its owners is affected by the time value or. Profit maximization objective does not take cognizance of this vital factor and treats all benefits, irrespective of the timing, as equally valuable.

In what ways is the wealth maximization objective superior to profit maximization objective explain?

(i) Wealth maximization is superior to the profit maximization because the main aim of the business concern under this concept is to improve the value or wealth of the shareholders. (ii) It takes into account time value of money.

What are the conditions of profit maximization?

The cost price p, must be equal to MC. The marginal cost must be non-decreasing at q0. For the enterprise to continue to manufacture in the short run, the cost price must be greater than the average variable cost (p > AVC), whereas in the long run, the cost price must be greater than the average cost (p > AC).

What are the limitations of profit maximization?

Limitations of Profit Maximization

  • Long-Term Sustainable Goals. Profit maximization might be one of the top goals of financial management but this type of practice doesn’t imply that short-term profit increases will help produce long-term sustainable goals for the company.
  • Product Quality.
  • Employee Training.