Maximization of profit in the conditions of the market

Each enterprise tends to maximize profits. It is the difference between total income and costs. Although the main goal of a commercial firm is to maximize profits, there are times when an enterprise works 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 firm's activities, including its cash savings;

- is the main source from which to pay the costs of social development and production;

- from this amount, a tax is levied, which the firm pays to the state treasury.

In connection with the rapid development of market relations, the concept of profit becomes more diverse. In Soviet times, it boiled down to simply deducting costs from incomes. This corresponds to the definition of the concept in the lexicon of accountants. Now it is considered from the economic side. Due to this, in addition to the definition of "income and expenses", the following appeared: "total revenue", "average income", "marginal revenue", "zero economic profit", "normal profit", "profit maximization".

Let us consider the latter concept in more detail. Maximization of profit occurs with the correct use of external and internal factors. The main requirement is that the income received from each unit of output must be high. At the same time, the amount of marriage should be minimized. That is, the company tries to make the greatest difference between income and costs. If the company increases the number of products, then simultaneously there is an increase in costs and income. At the same time, the company's financiers need to ensure that profits exceed marginal costs. While this happens, the firm can continue to increase production volumes. But with the onset of the moment when costs become more income, production should be suspended, as the enterprise starts to work at a loss. That is, profit reaches its peak when costs become equal to sales.

Consider the situations that usually occur in the firm, and whether there is a maximization of profit in a monopoly:

1. The company works efficiently if it produces products in such a volume that costs are well below the aggregate income.

2. The firm receives a high profit when the difference between aggregate income and expenditure is greatest. Maximizing the profit of an enterprise is the main objective under these conditions.

3. When total costs exceed aggregate income, the company incurs losses. But it should be borne in mind that even in this situation the firm can continue production, since in this case losses are less than those that arise when the activity is completely suspended. If the company covers variable costs, as well as part of the fixed costs , then it must continue to manufacture the products. The volume of production, in which total costs are only slightly higher than total income, means that the firm receives minimal losses.

4. If the firm receives equal amounts of costs and profits in the production of products, then it works with zero profitability. That is, the company does not receive revenue, but it does not bear any losses.

5. An organization may suspend production if, at a certain level, the losses it incurs will be equal to fixed costs.

In the case where the costs are significantly higher than the variable and fixed costs, the firm needs to close, at least for a while. Analyze the situation and determine the most profitable for the company the size of the products.