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Is Maximizing profits the same as maximizing the value of the firm?
Wiki User
∙ 10y ago
From practicalpolicy.com
Suppose you ran a company that made large aircraft - a company with lots of assets, like expensive machinery, assembly plants, real-estate, and R&D laboratories. Profit is the difference between the revenues and costs from doing business. If you wanted to maximize this quarter's profits, the easiest way to do it would be to simply sell all your hundreds of billions of dollars of assets. But, such a plan is not likely to attract investors, who are interested in buying a share of ownership that has value...
-Link: http://practicalpolicy.com/wordpress/?p=209
Wiki User
∙ 14y ago
Wiki User
∙ 14y agoAssuming that you understand what is maximisation, the the question is left only with two words, profit and value.
Profit = Incomes - Expenses, while value is simply the relative worth (in monetary or material terms)
Profit maximisation will mean the increase in income relative to the decrease in expenses to ensure that the net result is more money inflow (profit) than money outflow (expenses).
Value maximisation embraces the increase in the relative worth of a product or matter. An increase in the value or price of a product means that the amount (value) at which a product is traded is more than its original net worth. Therefore, value maximisation entails increases in the amount at which a particular product can be traded.
Wiki User
∙ 10y agointerest rates
Wiki User
∙ 10y agono
Anonymous
Because it considers interest rate
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What is the profit maximizing decision a perfectly competitive firm makes in the short run and explain why this firm can make profits in the short run but not in the long run?
A perfectly competitive firm maximizes profit in the short run by producing the quantity where marginal cost equals marginal revenue. In the short run, firms can make profits due to price fluctuations and temporary market conditions, but in the long run, new firms can easily enter the market, increasing competition and driving down prices to the point where economic profits are reduced to zero.
What is the primary objective of the firm?
The primary objective of a firm is to maximize profit and shareholder value while meeting the needs of its customers and stakeholders, and operating in a sustainable and ethical manner. This involves making strategic decisions that optimize resources and generate long-term growth and success.
Why maximizing shareholers' wealth is always the goal of a firm instead of maximizing profits of the firm's?
The foundation of a firm is the investment, the wealth of its promoters and more importantly the share holders. Share holders have invested their money in the firm basing on the confidence they have on the firm and believing that their investment will be safe and will fetch good reasons. Once their trust is shaken, it will ruin the firm. On account of all these, the primary goal of a firm is to maximise the share holders' wealth.
The profit-maximizing level of output for this firm?
Answers for If A Firm Is Producing A Level Of Output Where MR Exceeds MC, Would It Improve Profits By Increasing Output, Decreasing Output Or Keeping Output Unchanged?
Why should the shareholder of a firm care about maximizing a value of a firm?
the value of a firm determines their wealth.if the value of a firm,which is the market price per share of the total number of shares issued,is increased,invariably the shareholders' return is increased..by John I Agwu
Where will A profit maximizing firm produce?
Where the marginal benefits equal marginal costs.
How do you find a monopolist's profit maximising...?
The monopolist's profit maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output. Indeed, the condition that marginal revenue equal marginal cost is used to determine the profit maximizing level of output of every firm, regardless of the market structure in which the firm is operating.
When a firm is maximizing profit what else will it maximize?
When a firm maximizes its profit, it automatically maximizes its shareholder value. When both profit and the shareholder value increase, in course of time, the overall firm value will increase. All these would undoubtely increase its share price in the market as well.
When a perfectly competitive firm is at its profit maximizing level of output you can say that it is?
is producing where price exceeds marginal costs
Prove that profit maximizing firm will always minimise?
Profit is equal to total revenue minus total costs, if a firm wants to maximize its profit it has to lower the cost of producing a given level of output and or increase the item price if there is a willing buyer. If a firm is not minimizing costs then there exists a way for the firm to increase profits.
When a perfectly competitive firm is at its profit maximising level of output it is?
maximizing the difference between total revenue and total cost
How does maximizing the long-run expected cash flows of the firm translate into maximazing shareholders wealth?
Maximizing the long-run expected cash flows of a firm does not inherently translate into maximizing shareholder wealth. I believe the question that is trying to be posed here is how do long-run expected free cash flows of the firm translate into maximizing shareholder wealth. That answer is because free cash flows are the amount of money available to a firm to either reinvest into the business or distribute out to shareholders. Firms that generate free cash flows and then reinvest in their own business will generally increase their stock price (A company that is making profits and growing will be valued higher) or the firm can pay out some of those free cash flows in the form of dividends (obvious value to the shareholders). Long-run expected cash flows don't prove anything. If I have a million dollars that I want to invest into a lemonade stand, and that lemonade stand costs me $1,000 per month to operate ($1,000 outflow per month) but my monthly revenue is only $800 ($800 inflow per month) then I will have cash flows of -$200 per month. Since I'm ready to invest a million this will be sustainable for quite a long time, but it by no means is maximizing my (me being the sole shareholder) wealth.
