...with the liabilities and stockholders’ equity (right) side of the balance sheet. They answer such questions as how much debt should we have and should the debt be short or long term or should we borrow in foreign currency? The third major question deals with managerial decisions. These decisions are primarily concerned with firm’s policies and day-to-day operating and financial decisions. They answer such questions as how large should the firm be, and how fast should it grow? 2. What are three problems associated with using profit maximization as the goal of the firm? What is shareholder wealth maximization? How does shareholder wealth maximization deal with these three problems? The three problems associated with using profit maximization as the goal of the firm are the following: First, profit maximization is vague. Profit has many different definitions such as accounting profit based on book value or economic profit based on market value. Second, profit maximization...
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...for supply contracts? 2. What potential problems do you envision with cost-plus pricing? 3. Should Gina contest the price increase? Explain. 4. Is the increase more likely to be justified in the short run or the long run? Explain. 5. How will a $3 increase in the price of machine parts affect Gina’s own production decisions? Why do many firms use cost-plus for supply contracts? “Firms that use the technique calculate the total cost and then mark up the price to yield a target rate of return” (Brickley et al, 2009, p 211). “Often information on marginal revenue and marginal cost is difficult to obtain with precision, making it impossible to exactly determine the point of profit maximization. By using cost-plus pricing, you can simply include a desired rate of return in the mark-up” (Graham, 2013). The primary purpose is so highly used by firms is the ease. You do not have to be as accurate with your estimates, and you need to have knowledge of the market. Knowledge of the market will lead to the appropriate requirement for the actual cost of the product. What potential problems do you envision with cost-plus pricing? The potential problem with “cost-plus pricing is it focuses on average rather than marginal cost. Because profit maximization requires marginal cost equals marginal revenue, cost-plus pricing may not result in profit maximization” (Graham, 2013, p 238). The main reason a company is in business is to make a profit, and if you miss the market you will not...
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...I was in George Nash’s position, I would proceed with the sale without disclosing the information regarding what I had heard about the toxic waste. Using Deckop’s decision making models, the ethical decision-making may meet three goals: utilitarianism, profit maximization, and universalism. This means that if people use different perspectives, they would make different decisions. Profit maximization is actually a subset of utilitarianism, and the utilitarian is often portrayed figuratively as holding a scale, with the benefits on one side being weighed against the harm on the other. According to the profit maximization point of view, compared to harm, the decision may bring more benefit. In this case, Nash is conflicted between remaining silent and closing the sale immediately. Remaining silent will help his company stay solvent which in turns results in people remaining employed. Nash also have responsibilities to the company and employees. While speaking up and informing Fledgling about the toxic waste could delay or destroy the sale his company desperately needs to return to positive cash flow. Compared those two situations, I believed that keeping this sale is the right decision when using the theory of Profit maximization. Additionally, Florida law states that you do not have to disclose that there is a hazardous substance on commercial property as long as there is not a fraudulent statement...
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...square-foot manufacturing facility in less than a year. Later in another two years, John Craig opened a new facility in Cambridge, with two new brand facilities. They were trying to become the leading manufacturers of industrial attachments in North America. They became success and famous manufacturers by supplying snowplow blades, producing snow blades and wings for wheel loaders and motor graders, the most common barriers used in snow removal. As there was enormous growth, they started producing buckets and other attachments for excavators. The main problem is, the company was losing out on sales due to highly seasonal nature of demand. The plant was fully loaded during 4 months of the year and was ignoring many possible requests for product. At the same time, they had many unused capacity in the plant. Most of the time they were not able to meet the demand, because of this there was a fall in the revenue profit. Pricing and discounting off standard prices are the important factors, which need to be changed in order to increase the revenue. The general manager of Craig Manufacturing, Benjamin Craig, attended a lecture, where a more flexible approach to pricing had been suggested as a way to better manage...
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...00 $1,140.00 $800.00 $1,170.00 $930.00 $1,190.00 $1,070.00 $1,200.00 $1,220.00 Profit MR MC ($10.00) $0.00 $10.00 $120.00 $150.00 $20.00 $140.00 $140.00 $20.00 $340.00 $130.00 $30.00 $420.00 $120.00 $40.00 $480.00 $110.00 $50.00 $520.00 $100.00 $60.00 $540.00 $90.00 $70.00 $540.00 $80.00 $80.00 $520.00 $70.00 $90.00 $480.00 $60.00 $100.00 $420.00 $50.00 $110.00 $340.00 $40.00 $120.00 $240.00 $30.00 $130.00 $120.00 $20.00 $140.00 ($20.00) $10.00 $150.00 A. 1. Total revenue is found by multiplying output by the price. We also will find the profit amount by subtracting the total cost from the total revenue. From there we look for the largest difference in the Total cost and total revenue which will give us the maximum profit amount. 2. The Marginal Revenue and Marginal Cost approach for profit maximization is found when the marginal revenue equals the marginal costs. B. To figure marginal revenue we divide the change in total revenue by the change in quantity. 1. The marginal revenue decreases by 10 for each of the widgets that Company A produces. C. To figure marginal cost we divide the change in total costs by the change in quantity. 1. The marginal cost increases by 10 for each of the widgets Company A produces. D. Profit maximization occurs at where the marginal revenue and marginal costs are equal to each other. In the given problem for Company A the marginal revenue and marginal costs are equal at 8 widgets and the...
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...The Application of the Profit Function in a Business’s Growth Differential Calculus May 24, 2014 The application of calculus in a business is extremely important since calculus is considered as the study of changes. Its complexity in the study of changes has become one of the humankind’s greatest tool for analyzing changes in the marketplace. The profit function was created with the main purpose for businesses to understand how the changes in revenues and in costs would generate a profit or not profit at all. A profit can be generated when the amount of revenues is higher than the amount of costs. When a business starts, is normal to not gain any profit at all, in fact, most of the time, a business tends to lose money in its first year. However with that information, a business can analyze the money loss of that year and determine any gaps or holes that prevents the maximization of the profit and have a more prosperous result for the following year. For instance, if a company suffer a loss in profit, they can analyze the profit function to determine the main reason of why there was not a positive profit. If they see that the problem of the profit function was a low revenue then they can regulate the sale of products or services and price control, or if the problem lies in the cost function, they can adjust or lower the costs and expenses made by the business. The graph of a profit function can show at what time of the year the company tends to...
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...from breathing problems,cancer of the chest called Asbestosis.There were many researcher and journalist knew about the asbestos activities.They tried a lot to let the people know.But they could not publish it. Because they faced many problems.After that the asbestos faced lots of problem.As like they bounded to donate huge amount of money to the trust fund.,share holders left their 50% share.More over the asbestos sacrificed their lots of dividend in a year. Without that they faced lots of problems by the court. At last the asbestos got their sattlement by facing different types of problems.So their run way was not good for their profit maximization thinking. Asbestos company followed the Narrow way.Because of their stock holders looked for profit only.Very first time of their company they rechearched about that and they got that Asbestos is not good for environment.Because their workers were suffering from cancer and breath problem.After many years some journalist and researcher got that point and they tried to publish it.But Asbestos did not give the chance.After that they faced lots of problems in different times.As like they gave lots of money to the trust fund,stock holder gave their 50% stock to the fund.Lastly they give their maximum profit to the fund.Moreover they lost their reputation.Though Asbestos got their sattlement from the court but they got punishment.So very first time of their company they were good but after long run they lost their profit as well as...
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...Profit Maximization and Wealth Maximization are two objectives of Financial Management. Financial Management takes cares for proper utilization of funds, such that it will increase company earnings. Profit Maximization refers to the profit of the firm should be increased while in Wealth Maximization objective of a firm is to maximise its wealth and the value of its shares. There is always a debate regarding which more important. Profit Maximization The basic concept behind profit maximization is to earn a large amount of profit. It is a short term objective of the company (every fiscal cycle). There is no consideration for risks and uncertainty. It acts as measure for operational efficiency of the company. Profit maximization is necessary for growth and survival of the company. Wealth Maximization The goal of wealth maximization is to improve market value of shares. The main focus is on achieving long term objectives. There is consideration for risks and uncertainty. It tends to gain a large market share. It accelerates the growth rate of a company. I cannot say which one is better. Profit is basic requirement for any company. Profit feeds oxygen in the system to take breathe and survive. As we know profit is directly proportional to the risk. Higher the profit, the higher will be the risk. Risk factor can be neglected for a short run (profit maximization) but in long run (wealth maximization) risks or uncertainty cannot be ignored. Shareholders invest in company in hope...
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...Economics and Global Business Applications EGT1 Task 1 July 17, 2014 For a company to determine if it is profitable there are various factors that need to be assessed. An organization must produce a product, tangible or intangible, to produce a profit. The product must be produced at a cost that is low enough so that when sold, the mark up of the item is enough to pay the cost of production and make a profit. To determine profit you would deduct the cost of production from the total revenue made. Once an organization can determine the profit margin, it can plan on future endeavors. Total revenue is defined as “the total number of dollars received by a firm from the sale of a product.” (McConnel, 2012) Total revenue is not the profit that is made from selling a product. Total revenue is the money that was made when the product was sold to a consumer. Once total revenue is obtained, profit is determined by deducting the total cost from the total revenue. The relationship can be described as follows, “total revenue is the change that occurs in marginal revenue when one or more units of goods or services are produced” (McConnel, 2012). A change in quantity, whether this change is negative or positive, is when marginal revenue occurs. “Marginal Revenue is the change in total revenue that results from selling one or more unit of output.” (McConnell, 2012) An organization will make additional revenue by selling additional units of output. Marginal revenue is determined...
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...1.0 Introduction Profit maximization has to do with usage of limited resource in achieving optimal output hence it involves the prudent rationing of scare resource to production sectors that have the ability to yield the most returns all things being equal, However in the market concept the intention of the producer and supplier is to meet the needs of the customer or buyer hence that informs the producer where he should channel the available limited resources; because his or her inability to know the buyers interest directly or indirectly affects his profit margin therefore the need to study the power of the customer with regards to purchasing power and the need to fish out their interest at any given time in the production process. A thorough search has come up with the following factors as those that have the ability to influence a business windfall or profit margin in firms .Substainability of industry profit is a yardstick through which an organization can fulfil it aspirations. It can be daunting for business owners even to consider sustainability when they have other things to think about the day to day operations of the business. To be effective , sustainability needs to be worked into a business core strategy. This means starting with the executive discussions at the top level and ensuring that priorities trickle down to the lower level. Profit is the life blood of every sustainable organization to operate in the competitive environment. The following outline the signal...
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...introduction a plan to improve existing goods and services. The recommendation suggests applications for increasing revenue, maximizing profits, achieving ideal production levels, determining fixed and variable costs, and identifying methods to reduce the costs. The business proposal will establish that it is in the best interest for both clients and consumers. The current economy has been declining which has driven Thomas Money Service Inc. to find other methods to stabilize their profits, reduce loss, and help to gain or maintain market share. Thomas Money Service Inc. has been hit by the slow economy and the decease in the homebuilding market. The business proposal model will help Thomas Money Services Inc. to put in place applications to increase revenue, profit maximization quantities and to establish a mix of pricing and non-price strategies with low marginal cost and revenue theories. These applications will offset the negative impact of the decease in the homebuilding market. The business proposal presents methods to overcoming barriers to entry in to the market, how to increase product differentiation, how to input applications that will show potential cost savings for productivity and product pricing, and how to increase separations. Increase Revenue and Profit-Maximization Quantity To increase revenue and profit maximization for production quantities, Thomas Money Service Inc. needs to invest into another subsidiary within the medical industry. The company needs...
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...mid- 1970’s which focuses on shareholder maximization, and the beginning of 2000 which is customer-driven maximization. In the end, despite the growth and success of putting shareholders first, it appears that putting customers first has both the best profit margin and duration of effectiveness than any other business practice. In the early 1900’s, the initiative of managerial capitalism was to have a separation between ownership and management. The separation proved a fatal flaw to profit maximization. The owners could not have the control like the previous Rockefellers or Mellons, and the management was focused on padding their own pockets and building personal nest eggs. Consequently, this model transitioned into shareholder focus. However, this too had its fair share of problems percentage-wise; there was no difference in earning returns from the managerial capitalism to shareholder maximization. In addition, stock prices seem to be inextricably linked to shareholder’s expectations which are often unrealistic and ultimately have a cap. With customer-driven focus, although not perfect, a company’s market capitalization is greater as seen with the success of J&J and P&G which are both in the top 10 world list. Executive compensation is linked to long-term organizational gains through operating TSR ensuring the company’s future well beyond the tenure of any employee. And customer satisfaction drives decision making to create profit, growth, and...
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...Chapter 1: MANAGERS, PROFITS, AND MARKETS Multiple Choice 1-1 Economic theory is a valuable tool for business decision making because it a. identifies for managers the essential information for making a decision. b. assumes away the problem. c. creates a realistic, complex model of the business firm. d. provides an easy solution to complex business problems. 1-2 Economic profit a. is a theoretical measure of a firm’s performance and has little value in real world decision making. b. can be calculated by subtracting implicit costs of using owner-supplied resources from the firm’s total revenue. c. is negative when costs exceed revenues. d. is generally larger than accounting profit. 1-3 Economic profit is a. the difference between total revenue and the opportunity cost of all of the resources used in production. b. the difference between total revenue and the implicit costs of using owner-supplied resources. c. the difference between accounting profit and the opportunity cost of the market-supplied resources used by the firm. d. the difference between accounting profit and explicit costs. 1-4 When economic profit is positive, a. total revenue exceeds total economic cost. b. the firm’s owners have successfully solved the principle-agent problem. c. the firm’s owners experience an increase in their wealth. d. both a...
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...A. Profit maximization is the act of seeking 1. Total revenue = income generated by business Total cost = fixed costs + marginal costs Accounting profit from this standpoint is total revenue – the total cost = profit. Profit maximization from this standpoint is quite simply increasing your profit to as high a level as possible. 2. Marginal cost is the extra cost incurred per additional unit of product Marginal revenue is the extra revenue generated per additional unit of product A firm looking for profit maximization from the marginal revenue to marginal cost perspective is going to find the intersecting point between marginal revenue and marginal cost. Profit maximization occurs when marginal revenue equals zero but never below. B. Marginal revenue is the extra revenue that is added for every unit of output that is added. For Company A, marginal revenue follows a steady decrease as additional units are added. C. Marginal cost is calculated as additional costs that are incurred for each additional unit of output that is added. For Company A, marginal cost follows a steady increase as additional units are added. D. Company A can reach profit maximization when they produce 8 units of product. It is at this point that marginal cost and marginal revenue intersect and they are able to attain the highest level of profit. E. If marginal revenue is greater than marginal cost then output should be increased until they are equal F. Subsequently, if marginal cost is...
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...------------------------------------------------- Top of Form Powered by JRank Bottom of Form Reference for Business Encyclopedia of Business, 2nd ed. Reference for Business » Encyclopedia of Business, 2nd ed. » Man-Mix » Managerial Economics MANAGERIAL ECONOMICS Ads by Google 1 year diploma courses - Info on Courses, Scholarships & Admissions from IDP Experts. -india.idp.com/18001022233 SWOT Analysis Tool - Get a free 30 day trial of Mindjet the leading Mindmapping Tool! -www.Mindjet.com online gcp courses - Online, Classroom & Blended Courses Certification Programs & More! -www.cfpie.com CAT Scholarships-T.I.M.E. - Must for all cat and mba aspirants Register Now-Upto 100% scholarships - www.time4education.com/ttse Photo by: nyul Ads by Google MBA - Supply Chain Mgmt. 100% Online backed by Textbooks Academic support,E-Library.Join Now utsglobal.edu.in Rapid eLearning Train your employees with Rapid eLearning, cut your business costs www.niidtech.com MBA Distance Education Online 1 Yr MBA @ 29000. Approved from AIMA India & IAD UK. Enrol Now www.iibmindia.in Papermaking Technology Download white papers on new papermaking machines and processes www.risiinfo.com/whitepapers Decisions made by managers are crucial to the success or failure of a business. Roles played by business managers are becoming increasingly more challenging as complexity in the business world grows. Business decisions are increasingly dependent...
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