Profit Maximisation
In this essay I have been asked to carry out basic research for Shamrock Components Plc by using theories I will assess the factors that would influence the decision of the senior managers and whether they should join the joint venture or not.
Profit maximisation
Profit maximisation is the process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem. The total revenue - total cost method relies on the fact that profit equals revenue minus cost, and the marginal revenue - marginal cost method is based on the fact that total profit in a perfectly competitive market reaches its maximum point where marginal revenue equals marginal cost.
Basic definitions there are two different types of costs every business has and these costs are:
➢ Fixed cost ➢ Variable cost.
Fixed costs are something Shamrock would have to pay even if their production level is zero, and some of these costs are:
➢ Rent ➢ Wages ➢ General upkeep
As the variable costs changes with the level of production and output, so if Shamrocks production levels are high then the variable cost will increase as well, higher production at Shamrock would mean sales and profit will increase.
To maximise Shamrocks profit the managers of the company will have to target the right areas to promote and sell their product, selling more product will increase the sales for the company and the return will increase the profit for the company. Also the production department need to produce good quality products to gain reputation for the company and boost the sales, because if the product quality is poor then competitors will take advantage and attract the right customers to their products and service.
Maximising profit for the company is the aim for every manager in each department of the company and Shamrocks staff need to think the same and provide the best service they can to its customers also
Profit maximisation
Profit maximisation is the process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem. The total revenue - total cost method relies on the fact that profit equals revenue minus cost, and the marginal revenue - marginal cost method is based on the fact that total profit in a perfectly competitive market reaches its maximum point where marginal revenue equals marginal cost.
Basic definitions there are two different types of costs every business has and these costs are:
➢ Fixed cost ➢ Variable cost.
Fixed costs are something Shamrock would have to pay even if their production level is zero, and some of these costs are:
➢ Rent ➢ Wages ➢ General upkeep
As the variable costs changes with the level of production and output, so if Shamrocks production levels are high then the variable cost will increase as well, higher production at Shamrock would mean sales and profit will increase.
To maximise Shamrocks profit the managers of the company will have to target the right areas to promote and sell their product, selling more product will increase the sales for the company and the return will increase the profit for the company. Also the production department need to produce good quality products to gain reputation for the company and boost the sales, because if the product quality is poor then competitors will take advantage and attract the right customers to their products and service.
Maximising profit for the company is the aim for every manager in each department of the company and Shamrocks staff need to think the same and provide the best service they can to its customers also