179 for a number of years general motors used a

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179. For a number of years, General Motors used a pricing strategy designed to maintain at least 40  percent of the American car market. Does this strategy suggest that GM was maximizing profits or  pursuing an alternative strategy? ANSWER M, I Pursuing market share is not the same thing as profit maximization. Pricing for maximum profit  might have given GM less than a 40 percent share of the market. To increase sales, GM would have  had to reduce price below the profit-maximizing price. However, GM might have thought that  maintaining significant market share would help preserve their profitability in the face of foreign  competition in the long run
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258 Chapter 7/Output, Price, and Profit: The Importance of Marginal Analysis 180. Do firms really seek to maximize profits? ANSWER M, R Profit maximization is difficult because management needs a great deal of information about  revenue and cost in order to maximize profit. In addition, management may have other goals, such  as philanthropy, or members of a management team may not always agree on goals or means to  obtain them. Therefore, this assumption is an oversimplification. One suggested alternative goal is satisficing. As explained by Herbert Simon, this goal is  common in much of industry and government. Because information is costly, firms may settle for  less than maximum profit. 181. Why assume that firms maximize profit, when it is easy to find companies that pursue other goals  such as saving rain forests (Ben and Jerry’s) and sponsoring Mister Rogers (Sears)? ANSWER D, I Assuming that the two cited firms are not pursuing maximum profit (and that is not certain, since  good PR may be a profit-maximizing tool), profit maximization is useful as a simplification of  reality. We can learn much about the way firms operate, even if they do not behave this way all the  time. Secondly, even nonprofit firms must pay attention to the bottom line. It is worthwhile for them  to know how much profit is forgone if they choose a goal other than profit maximization. 182. Some companies follow a strategy of sales maximization. They say that this puts them in close  touch with their customers and they can better track the market, responding to needs more quickly.  However, this increases costs because of the need to stock a wider variety of parts and sizes and  colors, etc. What would make this strategy a profit-maximizing one?
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