Question

Greater profits are always better. Do You Agree? Why or Why Not?

Answer 1

Greater profits are better. However having profits also has disadvantages. Generally profits can be increased by lowering the cost of a product or service without compromising the quality,increasing the price, through redesigning workflow,etc...

The advantages of having high profit are :

1. Invest more on research and development

Research and development leads innovation, introduction and improving a product or processes.It provides long term profitability to the firm.However ,research and development may not always be successful.So an enterprise can resort to more research only when it has high profits.

2.Expand the business

An existing business can be expanded through fresh investment,entering into new business,opening up new stores in various physical location, etc..Higher profits enables to choose any strategy like market penetration strategy, growth strategy,product expansion strategy,etc..

3.Increase tax revenue

When the profits are high,more taxes have to be paid to government. So government gets more tax revenue which enables them to spend on more public services.

4. High dividend to the shareholders

When the profits are high more amount can paid as dividend to shareholders .This has many advantages like it provides shareholder loyalty, attracting more investors, etc...

5. Good signal for investors and entrepreneurs

Higher profits attracts fresh investors to invests in the business and also it provides a signal for other entrepreneurs to invest more on that particular industry.

  

Eventhough higher profits bring many benefits,it too has some sort of consequences like:

1.Monopoly power

Higher profits enables a firm to have a dominant position in the market.This can lead to monopoly. Monopoly restricts new entry into the market,provide accesd to critical natural resources, provide economies of scale, etc..

2.High tax payments

When the profits are high,the firm has to pay more taxes to the government.

3. Increased portion of cash reserves that are unused

While some firms resort more amount for new investment,some other firms has high cash reserves which are kept as idle money and it is unproductive.

Other disadvantage includes    higher inequality between firms,

an incentives to reduce the quality of the product to have high profits,etc...