Objectives of a Firm. Maximisation of Profits. Maximisation of profits ( Milton Friedman) Most common and theoretically easy Profits indispensable for a firm’s survival Whatever the stated objective, bottom line is always important
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
Objectives of a Firm
Maximisation of profits ( Milton Friedman)
Baumol’s hypothesis: Managers aim at Maximisation of firm’s total Revenue rather than profits
In competitive markets, sales volume determines market leadership
Marris’ Hypothesis of Maximising Firm’s Growth Rate: When this happens, managers maximise their own utility function as well as that of the owners.
Um= f(Salary, power, status, security)
Uo= Utility function for shareholders
Managers must try to maximise GD and GC
Total Revenue/ cost
Break even Point
Uses of Break-Even Analysis
Despite limitations, useful tool in production planning.
Given the following total cost and total revenue functions, find the BEP:TC= 480+10Q and TR= 50Q
From the above, we get
TFC= 480 AVC= 10 per unit
Since TR=P.Q, P=50
BEP= 480/ (50- 10)
=480/40 = 12 units
TC= 480+10Q and TR= 50Q
At 12 units TC= 480+(10 *12)= 600
TR= 50* 12 = 600
Net profit is zero.