Profit Maximization vs Sales Revenue Maximization Equilibrium
Firms aim to achieve specific objectives. The question compares two key objectives: maximizing profits and maximizing sales revenue.
Equilibrium Conditions Compared
The difference in objectives leads to different optimal choices regarding output level and price:
- Profit Maximization: This occurs where the firm produces the output level that maximizes the difference between total revenue and total cost. Mathematically, this is where Marginal Revenue ($MR$) equals Marginal Cost ($MC$), provided $MC$ is rising. $MR = MC$.
- Sales Revenue Maximization: This occurs where the firm produces the output level that generates the highest possible total revenue. This happens when Marginal Revenue ($MR$) is zero ($MR = 0$). This point typically occurs at a higher output level than profit maximization.
Outcome: Output and Price
Comparing the two objectives:
- A firm maximizing profit ($MR = MC$) produces less output and charges a higher price than a firm focused solely on maximizing sales revenue ($MR = 0$).
- A firm maximizing sales revenue produces more output and charges a lower price to achieve maximum total revenue.
Therefore, the equilibrium for a profit maximiser, compared to a sales revenue maximiser, takes place at lower output and higher price.
Important Questions from Microeconomics
Which of the following statement is correct?
I. Indifference curves are sloping from left to right.
II. Higher indifference curve gives a higher level of utility.
If in a production process, all inputs are tripled, which of the following statements follows?
I. If the output is tripled, then decreasing returns to scale apply.
II. When the output is doubled, constant returns to scale apply.
III. If the output is more than tripled, then increasing returns to scale apply.
When it is not possible to make someone good without harming someone, then such a situation is called
According to Ricardo what condition is necessary to make possible international trade between two countries?
Match List I with List II:
List- I
Shape of revenue curve of the firm
List – II
Market structure
A.
Kinked revenue-curve (I)
Monopolistic competition B.
Infinitely elastic straight line curve (II)
Perfect competition C.
Relatively less elastic curve (III)
Oligopoly D.
Relatively high elastic curve (IV)
Monopoly.
Choose the correct answer from the options given below -
