The effect of costs on profit maximization
Session
Management, Business and Economics
Description
In general, today in the world market and in our country, businesses have begun to pursue or have as their goal the maximization of profit, but they try to achieve this with an efficient use of the costs they have, depending on the nature of the jobs the firms have, are they manufacturing or service ones.
In their daily life, people are faced with many problems, so in an effort to find their solution they collect facts, organize them, derive answers and develop methods to find solutions to the problems they have regardless of whether it is requested by the individual, the owner of the firm or even the state itself.
Therefore, the decision-making by a firm to determine the amount of production or service dedicated to the market depends to a large extent on the costs and the price of the product or service that that firm produces and sells in the market. Therefore, an important factor that determines the size of the company's profit is the cost of the product or service produced. They appear in every company, regardless of the activity or the activity it develops.
The main objective of a firm is profit maximization, while costs are an important influencing factor in achieving profit maximization. The problem of a business is to maximize profit by choosing optimal quantities of inputs to employ and optimal quantities of output to produce.
In addition to the analysis of production costs, which are of special importance, when making managerial decisions, the business must also take into account opportunity costs as well as an important category of costs such as transaction costs, e.g. the costs of negotiating the price according to which the input will be purchased, payments for legal assistance, reaching agreements when concluding contracts, workers' payments, loan payments if any, etc.
The business should also pay attention to the design of policies for cost minimization because the minimization of costs simultaneously enables the realization of the objective of profit maximization.
Thus there will be two approaches to cost analysis: the problem of minimizing the cost of producing to a given level of product and then the problem of choosing the most profitable level of product. In the second approach, two methods are important for the analysis of profit maximization, such as the method of maximizing the difference between total revenue and total costs and the method of maximizing profit according to the condition, marginal revenue equal to marginal cost, but the focus in this paper it will be more in the first method.
Keywords:
Profit maximization, Cost minimization, Opportunity costs, Tansaction costs, Product costs.
Proceedings Editor
Edmond Hajrizi
ISBN
978-9951-550-95-6
Location
UBT Lipjan, Kosovo
Start Date
28-10-2023 8:00 AM
End Date
29-10-2023 6:00 PM
DOI
10.33107/ubt-ic.2023.164
Recommended Citation
Haziri, Artan, "The effect of costs on profit maximization" (2023). UBT International Conference. 18.
https://knowledgecenter.ubt-uni.net/conference/IC/MBE/18
The effect of costs on profit maximization
UBT Lipjan, Kosovo
In general, today in the world market and in our country, businesses have begun to pursue or have as their goal the maximization of profit, but they try to achieve this with an efficient use of the costs they have, depending on the nature of the jobs the firms have, are they manufacturing or service ones.
In their daily life, people are faced with many problems, so in an effort to find their solution they collect facts, organize them, derive answers and develop methods to find solutions to the problems they have regardless of whether it is requested by the individual, the owner of the firm or even the state itself.
Therefore, the decision-making by a firm to determine the amount of production or service dedicated to the market depends to a large extent on the costs and the price of the product or service that that firm produces and sells in the market. Therefore, an important factor that determines the size of the company's profit is the cost of the product or service produced. They appear in every company, regardless of the activity or the activity it develops.
The main objective of a firm is profit maximization, while costs are an important influencing factor in achieving profit maximization. The problem of a business is to maximize profit by choosing optimal quantities of inputs to employ and optimal quantities of output to produce.
In addition to the analysis of production costs, which are of special importance, when making managerial decisions, the business must also take into account opportunity costs as well as an important category of costs such as transaction costs, e.g. the costs of negotiating the price according to which the input will be purchased, payments for legal assistance, reaching agreements when concluding contracts, workers' payments, loan payments if any, etc.
The business should also pay attention to the design of policies for cost minimization because the minimization of costs simultaneously enables the realization of the objective of profit maximization.
Thus there will be two approaches to cost analysis: the problem of minimizing the cost of producing to a given level of product and then the problem of choosing the most profitable level of product. In the second approach, two methods are important for the analysis of profit maximization, such as the method of maximizing the difference between total revenue and total costs and the method of maximizing profit according to the condition, marginal revenue equal to marginal cost, but the focus in this paper it will be more in the first method.