Profit Maximisation Meaning Video Lecture | Economics for JAMB

profit maximization
profit maximization is the main aim of
any business and therefore it is also an
objective of financial management profit
maximization in financial management
represents the process or the approach
by which profits EPS of the business are
increased in simple words all the
decisions whether investment financing
or dividend etc are focused on
maximizing the profits to optimum levels
profit maximization is the traditional
approach and the primary objective of
financial management it implies that
every decision relating to business is
evaluated in the light of profits profit
maximization theory of directing
business decisions is encouraged because
of following advantages and
disadvantages associated with it
advantages are economic survival
measurement standard social and economic
welfare disadvantages are haziness of
the concept profit ignores time value of
money ignores the risk ignores quality
advantages of profit maximization
economic survival profit maximization
theory is based on profits and profits
are a must for survival of any business
measurement standard profits are the
true measurement of the viability of a
business model without profits the
business losses its primary objective
and therefore has a direct risk to its
survival social and economic welfare the
profit maximization objective indirectly
caters to social welfare in a business
profits prove efficient utilization and
allocation of resources resource
allocation and payments for land labor
capital and organization takes care of
social and economic welfare
disadvantages of profit maximization
haziness of the concept profit the term
profit is a vague term it is because
different mindset will have different
perception about profit for example
profits can be the net profit gross
profit before tax profit or the rate of
profit etc
there is no clear defined profit
maximization rule about the profits
ignores time value of money the profit
maximization formula simply suggests
higher the profit better is the proposal
in essence it is considering the naked
profits without considering the timing
of them another important dictum of
Finance says a dollar today is not equal
to a dollar a year later so the time
value of money is completely ignored
ignores the risk a decision solely based
on profit maximization model would take
a decision in favour of profits in the
pursuit of profits the risk involved is
ignored which may prove unaffordable at
time simply because higher risks
directly questions the survival of a
business ignores quality the most
problematic aspect of profit
maximization as an objective is that it
ignores the intangible benefits such as
quality image technological advancements
etc the contribution of intangible
assets in generating value for a
business is not worth ignoring they
indirectly create assets for the
organization thank you please subscribe
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