PROFIT is the difference between gross (total) income (TR) and total (gross, total) production costs (TC) for the sales period:

profit= TR-TC. TR= P * Q. If the firm's TR> TC, then it makes a profit. If TC> TR, then the firm incurs losses.

Total costs- is the cost of all factors of production used by the firm in the production of a given volume of products.

The maximum profit is achieved in two cases:

a) when (TR)> (TC);

b) when marginal revenue (MR) = marginal cost (MC).

Marginal Revenue (MR) is the change in gross income obtained when an additional unit of output is sold. For a competitive firm marginal revenue is always equal to the price of the product: MR = P. The maximization of marginal profit is the difference between the marginal revenue from the sale of an additional unit of production and the marginal cost: marginal profit= MR - MS.

Marginal cost- additional costs leading to an increase in output by one unit of good. Marginal cost is entirely variable cost, because fixed cost does not change with output. For a competitive firm, marginal costs are equal to the market price of the product: MS = P.

The limiting condition for maximizing profits is the volume of production at which the price is equal to the marginal cost.

Having determined the limit of maximizing the firm's profit, it is necessary to establish an equilibrium output that maximizes profits.

The maximum profitable equilibrium is the position of the firm in which the volume of goods offered is determined by the equality of the market price, marginal cost and marginal revenue: P = MC = MR.

The most profitable equilibrium in perfect competition is illustrated by:

In conditions of perfect competition, an entrepreneur cannot influence market prices, therefore, each additional unit of production produced and sold brings him marginal income. MR= P1

Equality of price and marginal revenue in perfect competition

P is the price; MR is the marginal income; Q is the volume of production of the product.

The firm expands production only as long as its marginal cost (MS) below income (MR), otherwise, it ceases to receive economic profit P, i.e. before MC = MR... Because MR= P, then general condition for maximizing profit can be written: MC = MR = P where MC - marginal costs; MR - marginal income; P - price.

29. Profit maximization under monopoly conditions.

The behavior of a monopoly firm is driven not only by consumer demand and marginal revenue, but also by production costs. The monopoly firm will increase output to such a volume when the marginal revenue (MR) is equal to the marginal cost (MC): MR = MC not = P

A further increase in the volume of output per unit of output will lead to an excess of MC additional costs over MR additional income. If there is a decrease in output by one unit of output in comparison with this level, then for the monopolist firm this will result in lost income, the extraction of which would be probable from the sale of another additional unit of good.

The monopolist firm derives the maximum profit when the volume of output is such that the marginal income is equal to the marginal cost, and the price is equal to the height of the demand curve at a given level of output.

This graph shows the short-term curves of the average and marginal costs of the monopolist firm, as well as the demand for its product and the marginal revenue from the product. The monopoly firm derives the maximum profit by producing the volume of goods corresponding to the point where MR = MC. It then sets the price Pm, which is necessary to induce buyers to buy the quantity of goods QM. At a given price and volume of production, the monopolist firm extracts a profit per unit of output (Pm - ASM). The total economic profit is (Pm - ACM) x QM.

If the demand and marginal revenue from the good supplied by the monopoly firm decrease, then profit-making is impossible. If the price corresponding to the output at which MR = MC falls below average costs, the monopoly firm will incur losses. (next graph)

When a monopoly firm covers all its costs, but does not make a profit, it is at the level of self-sufficiency.

In the long run, maximizing profits, the monopoly firm increases its operations until a volume of output is produced that corresponds to the equality of marginal revenue and long-run marginal cost (MR = LRMC). If at this price the monopoly firm makes a profit, then free entry to this market for other firms is excluded, since the emergence of new firms leads to an increase in supply, as a result of which prices fall to a level that provides only normal profit. Profit maximization in the long run.

When a monopoly firm is profitable, it can expect to maximize its profits in both the short and long run.

The monopoly firm controls both the output and the price at the same time. By inflating prices, it reduces the volume of production.

In the long run, the monopoly firm maximizes profits by producing and selling such a quantity of goods that corresponds to the equality of marginal income and marginal costs in the long run.

Ticket 30. Conditions and essence of economic competition.

Economic competition is rivalry between market participants for the best conditions for the production, purchase and sale of goods.

In terms of form, competition is a system of norms, rules and methods of managing market entities. Distinguish competition from manufacturers(sellers) and consumers(buyers).

Competition of manufacturers caused by their struggle for the consumer and is carried out with the help prices and costs. This is the main and predominant type of competition.

Consumer competition associated with the struggle of individual consumers for access to various goods (or producers for attachment to profitable suppliers to sellers of goods).

The economic significance of competition: it ensures freedom of entrepreneurship and freedom of choice, contributes to the improvement of product quality, the development of scientific and technological progress, the distribution of resources between industries, the elimination of the dictates of producers in relation to consumers.

Competition conditions:

1) The presence of many equal market entities

2) The economic peculiarity of economic entities

3) Dependence of subjects on market conditions

4) Different elasticity of goods

Competition functions:

1) Accounting by producers of demand for goods

2) Differentiation of the manufacturer's product

3) Allocation of resources in accordance with demand and rate of return

4) Liquidation of incapacitated enterprises

5) Stimulating the growth of production efficiency and improving product quality

Negative aspects of competition:

1 the formation of monopolies

2.Increase social injustice

3. Inflation, as a result of the impoverishment and ruin of individual economic agents

As a starting point in the analysis of production costs, the thesis was considered that the production of any good or service is based on the costs of economic resources. In this regard, questions arise:

What will the condition for maximizing the profit of a firm using some resource R look like? At what cost of this resource (Q R) will the firm's profit be maximized?

If several types of resources are used in the production of this good - R 1, R 2, R 3, ..., R n -1, R n, then what should be their combination in order to provide the company with the opportunity to produce this product at the lowest cost?

What should be the combination of R 1, R 2, R 3, ..., R n -1, R n for the firm to get the maximum profit?

Any firm maximizes profits by producing such a volume of output at which the marginal revenue (MR) it receives is equal to the marginal cost (MC). The values ​​of marginal revenue and marginal costs depend on the dynamics of gross income (TR) and gross costs (TS), respectively. How do TR and TS change when an additional resource unit is introduced into production? Let's introduce two new terms - "marginal product in monetary terms" and "marginal resource costs".

Marginal product in monetary terms (MRP) represents the change in the total revenue (TR) of the company due to the production and sale of units of goods released with the use of each additional unit of this resource:

where Q R is the amount of resource R involved in the production of this good (some good X).

Marginal resource cost (MPC) reflect the change in the total costs of the firm (TS) in connection with the involvement in production of an additional unit of the considered resource:

(2)

To maximize profits, any firm must use additional units of any resource as long as each subsequent unit of this resource gives a greater increase in the total income of the firm in comparison with the increase in its gross costs. Then profit maximization condition is the use of such an amount of a given resource, at which the marginal product in monetary terms will be equal to the marginal cost of the resource: MRP = MRC. This identity, in addition to logical justification, is also explained mathematically.

So, the initial condition of our mathematical proof will be the equality MR = MC, the components of which are calculated as follows:

where Q X is the change in the volume of production of some good X. Next, the marginal product indicator (MP) is determined:

Now we use the technique common in mathematics - and multiply the numerator and denominator in the mrp and MRC expressions by the same value, namely, by Q x. It is clear that the quotient of division in formulas will not change from such transformations. We get:

Thus, MRP = MR x MP, that is, the product of the marginal income of the firm and the marginal product of a given unit of resource, and the marginal cost of the resource can be obtained by multiplying the value of the marginal cost of the firm by the value of the marginal product: MRC = MC x MP. In expressions (3) and (4), the second factors coincide. On the other hand, at the beginning of our proof, we took MR = MC, which means equality and coincidence of the values ​​of the first factors in these expressions. Hence, we can state that the identity MRP = MRC really reflects the condition for maximizing profits for the manufacturing enterprise.

If a firm using a given type of resource in production is unable to influence its price (i.e., it buys resources in a completely competitive market for factors of production), then the marginal cost of the resource for all units of this resource will be the same and equal to the price of the resource (R R). The condition for maximizing profit in this case will take the form: MRP = MRC - P R, or MRP = P R. The significance of the provisions presented here will manifest itself in the analysis of the demand for an economic resource.

The above provisions are valid for a separate resource. However, the production costs of a firm include the costs of attracting many types of resources, without the use of which it is impossible to carry out production. Economics uses the concept of "production function" as a tool for analyzing this issue. Production function reflects the relationship between a certain volume of production (Q x) and the quantitative consumption of resources (QR 1, QR 2, QR 3, ..., QR (n -1), QR (n)) required to create this product X: Q x = f(Q R 1, Q R 2, Q R 3, ..., Q R (n -1), Q R (n))

Any production function reflects a specific technology, showing how each of the resources involved in the production process contributes to the creation of finished products. With the help of the production function, you can determine the maximum possible output for a given cost of resources. On the other hand, it allows you to find out what is the minimum required amount of resources for the production of a given volume of products. The production function helps to determine the various combinations of resources used, ensuring the possibility of achieving the same result, that is, the same value of Q x. In this regard, two main questions arise: what should be the combination of resources for the production of any given level of output with the lowest costs, and what combination of resources will maximize the firm's profit?

To answer the first question, let us recall that as the main indicator of the effectiveness of the use of any resource, we consider the level of its performance, in particular the MP indicator. In quantitative terms, the efficiency of using any resource is determined not only by its marginal productivity, but also by the market price of this factor of production (P R) and will be described by the expression: MP i / PR i, where MP i is the marginal product i th resource; Р Ri - its price.

In this case, any firm will always give preference to the resource for which the ratio of MP and R R will be higher. Involving an increasing amount of this resource in the production process, the company will face the problem of reducing the efficiency of its use, with the resource price unchanged, due to the law of diminishing marginal productivity; its mp will begin to decrease, which means that the quotient from the division MP / P R will also decrease. Obviously, the firm will continue to increase the use of the resource under consideration only until its relative efficiency becomes equal to the relative efficiency of other resources, i.e. until equality is satisfied

(5)

In other words, the cost of producing any volume of production is minimized if the marginal product for each monetary unit of the cost of each resource used is the same. This principle is called least cost rule.

The presented identity (5) makes it possible to find such a combination of resources that will provide the firm with the production of a given volume of products with minimal costs, but does not guarantee maximum profit. It was proved above that the firm maximizes profits if the equality mrp = mrC is observed. If the firm uses only two resources - A and B, the maximum profit is achieved if: MRP A = MRC A and MRP B = MRC B, i.e. when

In other words, when the following expression takes place:

If the firm is unable to influence the prices of economic resources and has to acquire each subsequent unit of the resource at the prevailing market price (p r), then mrc = P R, and the above condition is transformed:

where Р А and Р в are the prices of resources А and В, respectively.

This example considers the situation for two types of resources. If the obtained research results are "expanded" for all the resources used by the firm, we get the following expression, called profit maximization rule:

This equation characterizes a situation when a firm not only minimizes costs, but also maximizes profits. In its form, it is more strict than identity (5), and requires not just proportionality of the marginal product and the price of the resource, but equality of the numerator and denominator.

In the long run, as well as in the short run, the firm proceeds from the task of maximizing profits. To do this, she can change all factors and her size. At a given price, its profit will increase as long as each additional unit of production is cheaper than the previous one. In this case, the size of the enterprise and the associated output can be increased. Otherwise, cut back. Therefore, the initial condition for a long-term equilibrium of a perfectly competitive firm, as well as a short-term one, will be the equality of marginal costs to price (marginal income), with the only difference that long-term costs are meant: LMC - MR (P).

If in the short term the firm can operate both with profit and loss, then in the long term the unprofitable firm will be forced to leave the market.

In the long run, in a perfectly competitive market, operating unprofitable firms are forced to leave the industry. If firms in a given industry earn economic profits, new firms are motivated to enter this industry.

However, the long term allows new firms to enter the industry. Thus, in the long run, the number of firms in the market can either decrease (with a worsening market environment) and increase (with an improvement). At the same time, no barriers of a legal, economic or administrative nature stand in the way of new firms. This is not only the absence of any kind of collusion, but licenses, patents, lack of resources, etc. Likewise, there are no barriers to exit from the industry of any enterprise, if it wants to stop its production or move it to another region.

Therefore, if the firm is profitable, its production is attractive to other enterprises. New firms come to the market for this product, diverting part of the effective demand to themselves. Supply increases, competition intensifies. In order to sell successfully, this enterprise is forced to lower prices, as a result, profit decreases, and the influx of competitors decreases. If prices fall below costs, firms begin to incur losses and leave the industry. As a result, competition will weaken, supply will decrease, and prices will rise, therefore, firms will be able to earn profits.

In perfect competition, market forces set the price at a level equal to the minimum of long-run average costs. At this price, each firm earns a normal profit, there is no motivation for new firms to enter the market.

The process of entering and exiting will only stop when there is no economic profit. The zero-profit firm has no incentive to exit the business, and other firms have no incentive to enter.

There will be no economic profit if the price coincides with the minimum of long-term average costs, i.e. characteristics of the firm as a firm of the "limiting" type. Thus, the main condition that determines the equilibrium of the firm in the long run is the equality of the price to the minimum value of the average long-term costs, i.e.

In our example (see Table 4.3), long-term equilibrium will come when the market price drops from 500 rubles. up to 388 rubles. (the value of the minimum average costs). A graphic representation of this example is shown in Fig. 4.8. It is important that in this case the condition of short-term equilibrium is automatically met - the equality of marginal costs to price. That is, the firm has no incentive to increase or decrease the volume of output in the presence of a given size of a production enterprise - a given value of fixed costs.

At the same time, the size of the enterprise is optimal: the firm produces at a minimum value of long-term average costs.

A graphic illustration of the long-term equilibrium of a perfectly competitive firm is the situation when the curves of short-term and long-term average costs, coinciding at the points of minimum values, touch the price line (Fig. 4.9).

Rice. 4.8.

Rice. 4.9.

Thus, the condition for long-term equilibrium includes:

• short-term equilibrium condition: MC = MR (P).
• optimization of economies of scale - achievement of the minimum value by long-term average costs: LAC - min.

The implementation of the equilibrium conditions of a perfectly competitive firm in the long run predetermines the effectiveness of this market structure:

• 1) the lowest level of the market price, determined for the buyer by the value of marginal costs;
• 2) optimal distribution of resources, since the equilibrium volume corresponds to the minimum average costs.

However, no matter how attractive a completely competitive market is for the buyer, its full implementation in practice is impossible. In addition, a completely competitive market has a significant drawback - the lack of diversity.

If your business constantly requires more and more new investments in order to stay afloat, know that this is not normal and the situation needs to be corrected. In my two years in financial consulting, I have talked to a bunch of entrepreneurs who are suffering from this problem. In 2015, I myself got out of such a troubled business with a debt of 1.5 million rubles.

Businesses are different, but the problems are the same - and far from always they consist in the fact that the product is bad. I will tell you about the three most common mistakes due to which your business does not make money.

Common mistakes entrepreneurs make

1. You think that all the money of the business is yours

Entrepreneurs often live with the attitude “I = business, company cash register = my wallet”. If they want to go on vacation, they take it from the box office. You need to refuel the car - they go to the cashier again. They are the owners, so you can.

In fact, you can't.

The money that you have in your checkout or current account is not necessarily yours.

If you work on a prepaid basis, it can easily be customer money, and you are already spending it, although you have not fulfilled your obligation yet. For example, you create websites, spent an advance payment, and the client changed his mind and asked for money back. There is nothing to return.

Or you will need this money in the future. For example, on the 10th you took money from the cash register for a new phone, and on the 20th you have to pay your salary. Some of them will be left without a salary, because you bought a phone with someone else's money.

2. You are chasing more sales

The concept of profit is held in high school in social studies. But entrepreneurs, adults, seem to forget about it - and evaluate their business by the amount of money in the current account. Indeed, they are easier to count than profit. Only they don't say anything about the efficiency of work.

For example, an entrepreneur sold 300 belts per month with an average check of 3,000 rubles. I multiplied the numbers and got 900,000 rubles. After that, he will deduct the purchase price at most - say, 300,000 rubles remain. Seems to be OK. Has earned, is happy.

And if you subtract the salaries of sellers, transportation of goods, rental of premises, marketing costs, taxes, you get not 300,000 rubles, but minus 50,000 rubles.

3. Can't quantify management decisions

Every action in business must be measured through the prism of profit. There are no good and bad management decisions, there are profitable and unprofitable ones. But entrepreneurs do not calculate the impact that their actions bring.

Are you going to increase your conversion? Build a sales funnel and see how much revenue and profit this will ultimately result in. Do you want to automate business processes? Estimate how many your employees have. Then consider whether this time can be spent more profitably.

For example, you have a store with one cashier that, on average, serves one customer in 30 seconds. You've automated sales, and now the cashier spends 15 seconds on a customer. But does it make sense? If there are queues at the store, then yes. People will stop being nervous and leave, sales will increase. Next, you need to calculate how much more and when this increase will pay off the automation.

And if there were no queues, then no automation will bring any benefit. Unless the cashier will sit idle a little more.

Of course, there is no need to fanatically calculate the effect of rearranging the cash register by 3 centimeters to the left. But the key decisions in which you invest time and money are necessary.

How to avoid such situations

1. Take money from the business for yourself in accordance with your roles

Most likely, you have two of them: the owner and the director. The owner is entitled to dividends from profits. Determine what percentage of the profits you will take for yourself, and stick to that number. The director is entitled to a salary. Look at how much directors are making and set yourself the same.

Dividends and the director's salary are yours. Everything else is business.

2. Remember that an increase in revenue is not always an increase in profits.

Open any book on economics. It says: with an increase in the volume of sales, the price falls and the costs per unit of goods rise. It so happens that one sells 10,000 units of goods per month and works at a loss, while the other sells 1,000 units - and in chocolate. Increase your sales only as long as it gives you an increase in profits.

3. Make a financial model when you plan to change something in the business

A financial model is a table that shows how a change in one indicator affects all the others, including the most important one - net profit. It is easy to understand from it whether you should work on this or that indicator or if it is ineffective.

conclusions

The problem with entrepreneurs is what I call the absurdity of doing. A person works 14 hours a day, always comes up with something, solves some problems. With this approach, the process comes to the fore, not the result. I do, I do, but I don’t know what it gives.

I am for a different approach.

The main indicator that a business is working effectively is not the number of actions, but the profit. Every action should lead to profit. And you need to evaluate each action in terms of how it increased profits.

And in order to evaluate a business through the prism of profit, you need to keep financial records: to know the resources of the business, key indicators and levers of growth. For more information on what financial accounting is and why an entrepreneur needs it, read our previous one.

(minimization of losses) is achieved when the volume of production corresponds to the equilibrium point of marginal income and marginal costs. This pattern is called profit maximization rule.

The profit maximization rule means that the marginal products of all factors of production in value terms are equal to their prices, or that each resource is used until its marginal product in monetary terms becomes equal to its value.

The increase in production increases the profit of the enterprise. But only if the income from the sale of an additional unit of production exceeds the cost of production of this unit (MR is greater than MC). In fig. 1 this conditionally corresponds to the volumes of output A, B, C. The additional profits obtained as a result of the release of these units are highlighted in the figure with bold lines.

MR is the marginal income;

MC - marginal cost

Rice. 1. The rule of maximizing profits

When the costs associated with the release of one more unit of output are higher than the income brought through its sale, then the enterprise only increases its losses. If MR is less than MC, then it is unprofitable to produce additional goods. In the figure, these losses are marked with bold lines above points D, E, F.

Under these conditions, the maximum profit is achieved at the volume of production (point O), where the curve of marginal costs in its increase intersects the curve of marginal income (MR = MC). As long as the MR is larger than the MC, the increase in production yields an increasing profit less. When, after the intersection of the curves, the ratio MR MC is established, a decrease in production leads to an increase in profits. Profit grows when approaching the point of equality of marginal cost and income. The maximum profit is reached at point O.

In perfect competition, marginal revenue is equal to the price of the good. Therefore, the profit maximization rule can be presented in a different form:

In fig. The second rule of profit maximization is applied to the process of choosing the optimal volume of production for the three most important market situations.

Rice. 2. Optimization of the volume of production in the conditions of maximizing profits A), minimizing losses B), and stopping production C).

In conditions of perfect competition, profit maximization (loss minimization) is achieved when the volume of production corresponds to the point of equality of price and marginal costs.

Rice. 2 shows how the choice is made under the conditions of profit maximization. The profit-maximizing enterprise sets its production volume at the Qo level corresponding to the intersection of the MR and MC curves. In the figure, it is indicated by point O.