IGCSE, A Level Business Student Forum

Q3 Analyse the situations in which profit maximization can be the right business objective. [6]

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Possible Structure
[KN]
[AN]
[AN+]

[KN]
[AN]
[AN+]

[KN] when the business is in a stage of saturation
[AN] this is when market shares are the highest and they should take advantage of this
[AN+] they can take advatage by producing as much as possible to generate more profits

[KN] when the demad in the economy is at an all time high
[AN] this would make its products more indemand and be able to increase their sales
[AN+] this would result in more profits as revenue would increase and cost of production stays the same

[KN] Private limited companies
[AN] Private limited companies may prioritize profit maximization, as the owners aim to extract as much value as possible from the business.
[AN+] This is particularly common in family-owned or sole traders.

[KN] Financial Stability
[AN] Achieving consistent and high profits is important for financial stability.
[AN+] It allows companies to build up working capital, pay off debt, invest in research and development, and deal with recessions.

[KN] Exit Strategy.
[AN] For businesses with a specific exit strategy—such as selling the company or luring in investors—maximizing profits may be crucial.
[AN+] Profit maximization can raise the company's perceived value and appeal to investors or buyers.

[KN] Stakeholder Interests
[AN] Profit maximization is in line with the expectations of important stakeholders, such as shareholders or investors, when their main goal is to maximize their financial returns.
[AN+] In the case of publicly traded companies, where investors anticipate a return on their capital, this may be significant.

[kn] during expansion [an] when a business wants to grow internally or externally they will need funds [an+]this can further help them in achieving economies of scale resulting in lower avg cost so lower prices

[kn] during stage of saturation and or maturity [an] during such stages sales are at its peak with settled amount of competition thus profit maximization is the be option [an+] this can not only help to gain more revenue but also gain more market share

[KN] higher market share
[AN] when the business is the monopoly in the business then they should start increasing their profits
[AN+] as their is no competition then they should start profit maximization

{KN] innovative product
[AN] when the product is new in the market and the business has USP then they can start producing maximizing their profits as they are only producer of the product
[AN+] this would also result in brand loyalty from the customers

[kn] competition and innovation
[AN]businesses aiming for profit maximization often neede to be competitvei the market thus make business cost efficiency
[AN+]attract more investment and enabling buiness expansion and diversification.

[KN]SHAREHOLDER EXPECTATION
[an]ma publicily traded companies have a legal obligation to maximize their profits ,AND THESE SHAREHOLDER INVEST IN A COMPANY TO get a return on it and for the firm it alligns the interest on share holders
[A N+]lead to stable financial position which provide a safety net for unforseen

{KN] innovative product
[AN] when the product is unique the business can charge high prices.
[AN+] this would also result in increased profits

[kn] during stage of saturation
[an] in this stage the sales are the highest
[an+] thus they produce more to maximize thier profits

[KN]When a business has survived in the market
[AN]thus this means it is a stable business and can expand
[AN]Thus profits can be reinvested for future growth

[KN]When the shareholders want return on their investment
[AN]Profit is maximized to fulfil shareholder expectations and reward them for their financial investment and hardwork
[AN]Thus this can help to retain them

[KN] Debt Repayment.
[AN] Businesses who may be drowned in debt aim for profit maximization to ensure that they have enough financial resources to repay them.
[AN+] Thus this will lead to sustainable growth with increasing the credibility of business too.

[KN] Highly competitive market.
[AN] In order to survive in such markets businesses may aim for this, increasing the total life spam of business operating in the market.
[AN+] Thus this will enable businesses to stay in line with other competitors hence helping to maintain market share.

[KN] innovative product with low competition levels
[AN] High prices can be charged
[AN+] revenue maximization and hence earn high profits

[KN] In case the business becomes a monopoly
[AN] could possibly sell high priced products but with cheaper quality
[AN+] maximum income will be generated for the owner

[kn] innovative product with less competition
[an] because of such a product the demand will be high therefore higher prices can be charged
[an+] thus revenue will be aimed to be as high as possible and so keeping the aim of profit maximization
[kn] in case of monopiles or being a luxurious product with strong brand image
[an] through which consumers can be taken advantage of thus charging higher prices for low quality products
[an+] thus maximum income can be generated for the owner leading to profit maximization

(KN) Innovative product with less competition levels
(AN) as due to this not only will the product be in more demand due to it being innovative but also since there are less competition levels, the product will make more sales and hence earn more revenue for the business than before,
(AN+) hence profit maximization is the right business objective at this time so that the business could make money out of its innovative product while it can.

(KN) In case of monopolies / Luxuries with strong brand positioning
(AN) as due to the business being a monopoly, which provides luxuries along with it's strong brand positioning, this could be a crucial time for the business to earn more profit as it is more likely it may due to these factors,
(AN+) thus due to this, profit maximization may be the right business objective at this time, so that the business can capitalize on as much profit as they can in short run.

Expansion of the business
During Expansion of the business they will want to get higher profits so that they can grow externally and internally which will help the business lower its CoP thus lowering costs by economies of scale


Innovative products
Of the business offers an innovative product then they will charge higher amounts of money for it as its in high demand and there is little to less competition being there since the produst is innovative thus profit maximization will benefit the business and they can further look into making more innovative products

(kn)luxuries with strong brand image
(an) business can set higher price level as they might be confirmed about their customer loyalty
(an+) meaning more tax can be lived on the customers where as the business can receive more profit
(kn) innovative products with less competitive
(an) as its prices will be high for that product
(an+)this way business can keep profit maximisation as an objective