econ 25mark.pdf - (Question 8 Profit maximisation occurs...

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(Question 8) Profit maximisation occurs when marginal cost MC is equal to marginal revenue MR. Traditionally, this is the main objective of the firm however it can be argued that this is not always the case. Revenue maximisation occurs when MR= 0. In the Neoclassical Theory of the firm it is assumed that firms’ main objective is profit maximisation. Profit maximisation can be argued as the most important objective as profits play a crucial role in running a firm. First and foremost, profit is an indication for success. Maximising profits also means that shareholders are likely to benefit from higher dividends. Next, employees may benefit if some part of their pay is linked to the profitability of the business. Higher profits may also lead to increased capital spending which will benefit businesses in industries such as engineering and construction. Furthermore, retained profits can be used for investment or research and development (R+D) to improve the quality of the good/service.

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