Question

Profit Maximizing companies need to know three (3) things in order for them to make good decisions. What are the three (3) things?

Answer 1

Companies may take different approaches to maximize profit or minimize loss.Product differentiation and low price are critical to maximize profit.To controll cost and to create market share may be more important to minimise loss.

Product differentiation can differentiate themselves by providing top quality products or services can command higher prices in the market. Price alone does not guarantee profit, it does companies to maximize profit. If other things being equal, the companies can charge higher price for their products or services, through that they can attain maximization of their profit.The differentiation strategy works when customers are less price sensitive and more on quality conscious.

Customers in the market have different taste and preferences.When customers look for products or services with competitive prices, the companies can adopt low - price strategy. When the demand for a product or service is highly elastic , lower the price ,the demand will be higher. When the companies expected less reveue per unit at lower price, increased sales volume will lead to more total profit.The abiliy to have mass production by those companies can expand distribution, which is the key to the success of low - price strategy

Controlling cost is a major step toward minimising loss.When they can operate at consistent low cost level, they will be in a better condition to absorb any price decline or downturn and stay in profitable condition.The lower the cost larger the profit margin. If cost rises to a level that result a thin profit margin companies become vulnarable to any price shock, which results in significant loss. To minimise loss, companies must aim to achive the break - even sales volume by maintining a satisfactory level of market share also.