Theory of Microeconomics Free-Samples for Students Myassignment

Question: The CEO of HAPPY enterprise has decided to change its business strategy from a sales maximising strategy to a Profit Maximising Strategy. Use graphs to support your explanation of the two Methods a company can use to decide on how much it has to produce to ensure it achieves a profit Maximising Output level. Answer: Sales maximisation strategy and Profit maximisation strategy Figure 1: Sales maximisation graph (Source: created by author) Through sales maximisation revenue a firm makes as much as revenue without making a loss. Sales is maximised where marginal revenue is zero. In the above diagram, P0QA is the amount of maximum revenue that the firm can earn. PCMA is the amount of profit. Firm intends to maximise revenue by increasing sales volume at a lower price (Rader 2014). Profit maximisation strategy Figure 2: Profit maximising output and price (Source: created by author) Profit is maximised where MR = MC and produced output is Q2, which is less than revenue maximisation output. PCDB is the maximised profit of the firm. Firm maximises profit by charging higher price and selling lesser output (Waldman and Jensen 2016). Reference Rader, T., 2014.Theory of microeconomics. Academic Press. Waldman, D. and Jensen, E., 2016.Industrial organization: theory and practice. Routledge.