Every company seeks to maximize profits.It represents the difference between gross income and all costs.Although the main purpose of a commercial firm is to maximize profits, there are periods where the company operates at a loss.
Net income is one of the main performance indicators of the organization.Profit performs the following functions:
- shows the financial results of the company, including its cash savings;
- is the main source from which the payment of the cost of social development, and production;
- this amount is accrued tax that a firm pays to the state treasury.
In connection with the rapid development of market relations is becoming more diverse the notion of profit.In Soviet times, it came down to the fact that simply subtracted from the income of the costs.This corresponds to the definition of the term in the lexicon of Accountants.Now it is considered from the economic side.With this addition to the definition of "income and costs" were the following: "total income", "median income", "marginal revenue", "zero economic profit", "normal profit", "maximize profits."
Let us consider the latter concept.Profit maximization occurs at the correct use of external and internal factors.The main requirement is that the income derived from each unit of output, should be high.At the same time, the number of marriage should be kept to a minimum.That is, the company is trying to make as big a difference between income and expenses.If a company increases the number of products, the same time there is a growth of expenses and income.At the same time financiers businesses need to ensure that income exceeds the marginal cost.Until that happens, the company can continue to increase production volumes.But with the coming of the time when the costs become more revenue, production should be suspended, as the company begins to operate at a loss.That is the profit reaches its peak when the costs are equal to sales.
consider situations that usually occur in the company, as well as whether there is profit maximization under monopoly:
1. The company works efficiently when it produces this volume, in which the cost is significantly lower total income.
2. The company has received high returns when the difference between total revenue and expenditure greatest.Maximizing profits of the enterprise - the main goal under these conditions.
3. When the total costs exceed total revenue, the company incurs losses.But keep in mind that even in this situation, the company can continue to manufacture, as in this case, losses are less than those that occur in a full suspension of activities.If the company covers the variable costs, as well as part of the permanent, then it is necessary to continue to manufacture the products.The volume of production where the total cost is only slightly higher than the total income, means that the company receives minimal losses.
4. If a firm in the production process gets an equal amount of costs and profits, it is working with zero profitability.That is, the company does not receive income, but does not bear losses.
5. The Organization may suspend the proceedings, if a certain amount of losses that it carries, will be equal to fixed costs.
