Profit maximisation seeks to increase the bottom-line profit, regardless of sales or other considerations.

Total Profit = sales costs or TR TC. If sales reduce, but if costs reduce by a greater amount, profit will increase.Profits can also be increased by maintaining at costs at their present level, and increasing the selling price. Assuming that the volume of sales does not decrease, bottom-line profits will increase. There are 2 conditions that must be fulfilled for TR TC to be maximum. The conditions are 1. The necessary or the first-order condition required that marginal revenue (MR) must be equal to marginal cost (MC). 2. The secondary or the second-order condition requires that the necessary or first-order condition must be satisfied under the stipulation of decreasing MR and rising MC. The companies that preferred sales maximization over profit maximization are 1. Tata Docomo reduced the prices and gave sim cards for free during their festive offers to increase their sales. Their profit may not be huge. Big Bazaar sold the goods at very low price, thus cutting down their profits and increasing their sales. 2. Also Ginger hotels provided very low rates for their customers. 3. There are policies that are adopted by newspapers like DNA and Hindustan Times which provide annual subscription at very low rates. Examples of profit maximization: However the sales of Vodafone may not be as that of Docomo but still their profits may be huge. Also HUL gains a huge profit from their product Dove though the sales of that product are very less.

Profit maximizing graph

Q) Give the difference between optimization and maximization as commercial goals. Optimization Optimization is attaining max. efficiency.

Efficiency = output / input or quantity / input It refers to process of a firm which aims of achieving highest possible efficiency level. Now this efficiency can be improved by either increasing the quantity, decreasing input or both. (Is this underlined sentence correct? Else it can be written as: Efficiency can be improved by increasing the quantity or decreasing input or doing both but there is a certain optimum amount of output as well as input where the efficiency is maximum.) An optimization technique is one of maximizing or minimizing a function. It is a technique of finding the value of the independent variables that maximize or minimize the value of the dependent variable. An extreme of optimization is to maximize the revenues and minimize inputs or workforce. Examples of optimization: 1) GE cut down the workforce to increase efficiency. 2) NREGA asked employees to open an account in SBI to save the amount of money that is earned by the middle men. 3) Cell phone companies allow online bill payment, so less people are employed for bill collection. Maximization

Maximization as commercial goals can be called as increasing the profits or revenue of the firm i.e. profit maximization or sales revenue maximization. It can be also called as unconstrained optimization i.e. it is assumed that the firms operate under no constraints on their activity. For eg. in the case of output maximization, firms face no resource constraints, they possess unlimited resources and can acquire all the inputs , finance, capital equipment, labour and raw materials that they need to maximize output. However in real business world, firms do face serious resource constraints. For eg. they need to maximize output with given quantity of capital and labour time.

But optimization needs to be done keeping in mind all these constraints that the company faces. According to Baumols theory, sales maximisation, rather than profit maximization is the plausible goal of the business firms. He finds that managers seek to maximize sales revenue rather than profits. This can be seen in many of the leading companies today. Eg.Tata Docomo reduced the prices and gave sim cards for free during their festive offers to increase
their sales. Big Bazaar sold the goods at very low price, thus cutting down their profits and increasing their sales. Also Ginger hotels provided very low rates for their customers. The other business goal can be profit maximization. The basis of conventional price theory regards it to be the most reasonable and analytically the most productive business objective. Total profit is defined as: TP = TR TC Where TR = total revenue and TC = total cost Examples: Vodafone , HUL - Dove