Profit maximization model

To determine the optimal selling price, a mathematical model based on the provisions economic theory, according to which the profit is maximum when the marginal cost is equal to the marginal revenue. A company should produce and sell additional units of output if the increase in revenue from the sale of each additional unit exceeds the cost of producing it: that is, if the marginal revenue exceeds the marginal cost. Conversely, if the cost of the subsequent unit exceeds the revenues that can be obtained from its sale (that is, if the marginal cost exceeds the marginal revenue), production is impractical.

In the language of mathematics, this can be written like this: the company should produce products to the level of production when the marginal revenue (MR) is equal to the marginal cost (MC):

The basic price equation looks like this:

where: p is the price, x is the volume of demand, a and b are constants, where b is the slope of the straight line and is calculated as b = Change in price / Change in demand

For example, if demand decreases by 25 units for each increase in price by 100 rubles, then

The marginal revenue equation can be obtained by doubling the value of b:

MR = a - 2bx

Marginal costs represent variable costs production.

The maximum demand for the company's M product is 100,000 units per year. The demand will decrease 40 units for each increase in price by 60 rubles. The company has determined that the maximum profit will be achieved on a sales volume of 42,000 units per year. What is the selling price of product M that maximizes profits?

In the demand equation, p = a - 2bx, where p is the price, x = the volume of demand, and a and b are constants. The maximum demand is reached when the product is free, that is, when p = 0

Therefore, the demand equation for product M looks like this, p = 150,000 - 3x

When x = 42,000, p = 150,000 - 3 * 42,000 = 24,000 rubles.

Therefore, the selling price that maximizes profit is 24,000 rubles. for a unit.

Consider product K, which costs 600 rubles. for every unit sold. Cost structure:

The demand function for product K and the marginal revenue function (MR) are as follows:

p = 12,000 - 12x

MR = 12,000 - 24x

where p is the price, and x is the volume of demand for the period.

What is the selling price of product K that maximizes profit, and how much will be sold over the period at that price?

Marginal costs per unit of product K = variable costs per unit = 360 rubles. The profit is maximum when the marginal cost is equal to the marginal revenue, that is, when

360 = 12,000 - 24x

When x = 485, p = 12,000 - 12 * 485 = 6180r.

Therefore, the selling price that maximizes profit is RUB 6,180. per unit, with such a yen, 485 units will be sold per period.

Restrictions on the application of the method:

Companies cannot accurately determine the demand function for their products or services.

Most companies strive to achieve targeted profits, rather than theoretical maximum profits.

Accurate and reliable determination of the value of marginal or variable costs is a laborious task for a specialist in management accounting.

The magnitude of the marginal cost per unit varies widely depending on the volume of products sold. For example, bulk discounts can reduce the cost of materials per unit of production at higher production volumes.

Other factors in addition to price influence demand, such as the level of advertising support or changes in consumer income levels.

Nevertheless, the profit maximization model is useful, if only because it shows the fundamental relationship between supply, demand and marginal cost.

Cost plus pricing method

Selling price = cost price + markup

Fixed costs are usually allocated based on the number of units produced, so full cost product will be a function of the number of units produced, which in turn will depend on the number of units sold. The number of units sold will depend on the price of the product, that is, a cyclical relationship is obtained.

The cost plus method can be used for pricing in a situation where an order for the manufacture of a certain quantity of products with certain technical requirements the consumer is housed in a company that manufactures products to order. However, for most companies this method is not applicable. Various factors will influence the pricing decision, such as competition and product differentiation. However, understanding the cost and selling price of different volumes makes the pricing process more reliable, even if the actual costs and prices differ from the theoretical ones.

If a company uses the cost plus method for pricing, it must decide whether to apply a standard markup or change the markup depending on market conditions, type of customer, etc. The standard markup is used by government contractors and some companies that do custom costing. Most companies change the margin based on different conditions market for their products.

Consider an example of cost-plus pricing using various cost assumptions.

The company has decided to replace product A with an updated product B and must calculate a baseline cost to which a markup must be added to obtain the sales price. Variable costs are determined based on the company's experience with product A, however, there is a 10% uncertainty in the costs of product B associated with production conditions:

Since the number of machine hours to produce product B will be the same as for A, the company believes that it will be able to produce the same amount of product B per month as the current production of product A, which is 20,000 units. 5000 machine-hours can be considered as equivalent capacity used to absorb fixed production overheads. Other fixed costs:

For costing purposes, it is assumed that 20,000 units of Product B account for 10% of the total fixed selling and fixed administrative costs.

Cost of production of product B based on the principles of full cost absorption and 10% error:

Depending on the method of analysis adopted, the baseline cost may not include fixed advertising and / or fixed administrative costs. Thus, the base cost can vary from 1380 (660 + 720) to 1494 rubles. The base cost increases with each calculation option, so an increasing proportion of total costs will be offset by the selling price. The margin used for pricing is likely to decline when all of the costs are included. more types of costs.

The cost markup should be based on certain assumptions. As a rule, it is set in such a way that the company receives the required return on invested capital based on a certain capacity utilization.

Cost-plus pricing has the following advantages:

The required profit will be obtained if the planned sales volume is achieved.

This method is applicable in industries where contract costing is done, such as construction, where several large contracts may account for most of annual fixed costs, while the amount of fixed costs is lower than the amount of variable costs.

Assuming the company knows its cost structure, the cost-plus method is quick and inexpensive to use. Since the method is a kind of template, the pricing of this method can be easily delegated, thus saving executives time.

Cost-plus pricing can be helpful in justifying selling prices to consumers; the increase in costs is an argument for an increase in the selling price.

A number of problems associated with the cost-plus pricing method should also be noted:

Uncertainty associated with choosing an “acceptable” base on which to allocate fixed costs to specific products or services. The selling price can fluctuate widely depending on the chosen fixed cost allocation base. This can lead to the establishment of an overpriced or underpriced in relation to competitors, and as a result, the loss of consumers, or sale at a loss.

If prices are based on normal volume and actual volume is significantly lower, fixed overheads will not be fully offset by sales revenue and projected profits may not be generated.

Cost-plus pricing does not take into account factors such as competitors.

The cost-plus method does not allow the company to have a certain degree of flexibility at various stages life cycle product. The method does not take into account the price that consumers are willing to pay and the price elasticity of demand. This feature is illustrated in the following example.

Variable costs for product A are 600 rubles. Fixed production costs in the amount of 60 million rubles. distributed based on the expected production and sales of 200,000 units, that is, 300 rubles. for a unit. Thus, the total cost is 900 rubles. for a unit. The cost-plus method used by Product A manufacturer is based on a standard 40% mark-up on total cost product, which gives a selling price of 1260 rubles. Assuming that all expenses were in line with foreseen, and the company was able to sell 200,000 units at a fixed price of RUB 1,260, a gross profit of RUB 72 million would be obtained. (360 rubles * 200,000 units).

Suppose that market analysis showed the elasticity of demand for the product price:

Below is a price analysis aimed at maximizing the profit margin and therefore the overall profitability of the company:

The decision to set the price using the cost plus method in the amount of 1260 rubles. has a corresponding opportunity cost or loss of profits. Not taking into account market conditions, the company will not receive additional profit in the amount of 1.2 million rubles. and its market share will be less than it could have been.

Cost-plus-margin pricing method

To an accountant, marginal costs are the same as variable costs. Advantages of the cost-plus-margin pricing method over the cost-plus method:

The pricing principle is the same as for the cost plus method. A higher percentage mark-up is added due to the need to compensate for fixed costs and make a profit. Uncertainty about the magnitude of fixed unit costs occurs in both pricing methods.

Understanding the magnitude of the marginal cost enables management to set the price below the total cost in order to fill capacity during times of unfavorable market conditions.

The method is especially useful in determining the price of a one-time contract, since it allows you to take into account all relevant costs, opportunity costs, as well as costs already incurred.

The method also recognizes the presence of limiting factors (bottlenecks). Their use by competing products and services must be reflected in the selling price if profit is to be maximized. When bottlenecks exist, the goal is to maximize the overall margin by the limiting factor. To do this, you need to calculate the profit margin from each alternative product or service per unit of limited resource, and then add the accepted profit margin to it.

The company has been successfully producing product A for several years, and the demand appears to be static for the foreseeable future at a market price of 900 rubles. for a unit. Formed new market for product B, the company could produce this product without additional investment in equipment and without increasing or retraining existing personnel. However, for the production of product B, the same direct material is used as for product A, material C for which there is a shortage.

Exercise. Determine the minimum selling price of product B, below which it would be inappropriate to divert resources from the production of product A.

Costs for two types of products:

Product A brings a marginal profit of 360 rubles using 6 units of material C, that is, the marginal profit per unit of material C, a limiting factor, is 60 rubles. (360/6). For the production of product B, 5 units of material C are used. Therefore, the company should strive for a marginal profit of 300 rubles. (5 units of material C * 60 rubles). Thus, the price should cover the costs per unit and the lost marginal profit from C, that is, be at least 420 + 300 = 720 rubles.

Premium pricing strategy Is a method in which a company sets prices significantly higher than its competitors. This method can be used if the product is truly different from and superior to competitors' products, which usually means building a brand based on the following:

Quality

Image / style

Reliability / "survivability"

Durability

After-sales service

Extended guarantees

To create a brand, a large-scale advertising campaign for product promotion. Thereafter, the brand name must be continuously advertised or used in promotional campaigns. Brands like Apple, Levi, Mars, Coca-Cola, and others require huge annual investments. The advantage is the higher selling price, which brings in higher profit per unit, as well as the creation of customer loyalty, which makes the product relatively price inelastic. Such benefits must, of course, outweigh the costs of maintaining brand awareness among consumers.

Skimming the market strategy Is a method that sets a high price for a product when it goes to market so that the product is purchased only by those consumers who desperately want to purchase it. After that, the price goes down, making the product more affordable. When the next group of consumers got the opportunity to purchase a product at that price, the price goes down again, and so on. The goal of this strategy is usually to maximize revenue. But in some cases it is also used to extend the life of older products.

Consumer durables companies often use the skimming technique. This is done to a certain extent in order to offset the significant costs of R&D as quickly as possible. But the products themselves have great importance with this pricing method, because the trendsetters are willing to pay a higher price in order to acquire the latest gadgets, and the rest of the population follows their example in the years to come. Book sales also use this method: new books are sold in hardbacks at a high price. The cost of hardcover books is slightly higher than the cost of paperback books. Avid readers of such an author will buy the hardcover book at a high price. A year later, the book is published in paperback at a discounted price in order to reach a wider audience.

The method of “skimming the market” was first used in late XVIII century by Joshua Wedgwood, a renowned pottery manufacturer. He made vases of classical form, decorated with floral ornament, and sold them to rich and wealthy people. Naturally, he set an appropriate price for his products. As the design became obsolete and popularized, he reduced the prices of such lines and offered new designs of vases at a high price. Thus, he created different market segments for his products, and people who were not so well off could afford to buy the products that had been produced for several years. Such a marketing ploy allows you to extend the life of the product and get the most out of it.

If the demand for a new or innovative product is relatively inelastic, the supplier can use the “skim the market” method. It is usually much easier to lower the price than to increase it, so it’s better to start with high price, and reduce it if demand becomes more elastic than expected. If skimming the market remains profitable after the end of the product lifecycle, there must be significant barriers to entry to prevent too many potential competitors from emerging, attracted by high price and revenues. In the case of books, only one company has publication rights. Wedgwood created an image / brand among the rich and famous that could not be copied by others, especially if they wanted to sell products at a price below their stated price. Consumer durables are characterized by high level production costs which is holding back too many companies from entering this market.

Penetration price strategy or a low price strategy for market penetration involves setting a very low initial price for a new product. Usually the price is set below the total cost. The goal is to quickly gain significant market share by inviting consumers to try the product and then re-purchase. This tactic is used when there are low barriers to entry into the market. The company expects to establish a dominant market position that will discourage new competitors from entering the market, as they cannot easily reach the minimum required level of income at such a low price.

Price differentiation strategy. If the market can be divided into different segments that are quite different from each other and with their own specific demand function, it becomes possible to sell the same product to different consumers at different prices. Marketing techniques can be used to segment the market in the absence of natural dividing lines. Segmentation will always be based on one or more of the following factors:

Time (eg train travel is cheaper outside the high season, the same principle applies to pricing policy for accommodation in hotels, telecommunications);

Quantity (for example, small orders at a markup, bulk orders at a discount);

Consumer type (for example, student and pension rates);

The volume of purchases (for example, different prices for wholesalers, retailers, end consumers);

Geographic location (e.g. kiosks and upmarket shops, urban and rural outlets, rich and poor areas, various countries);

Product concept (for example, a sports version of a small car).

This pricing strategy is especially used in cases where the service provider (theater, entertainment center, rail operator) has a high share of fixed costs. Attracting those who want and can use the service in less popular time/ in less popular place will help increase profitability.

Setting the price of goods sold at a loss, in order to attract buyers. When a product line consists of one or more core products and a series of related "add-ons" that consumers can "add" to the core product, the supplier can establish relatively low price for the main product and the high price for add-ons. Obviously, the goal is to stimulate sufficient demand for the former to ensure that the target profit margins are generated from the latter. The strategy was successfully applied by aircraft engine manufacturers who won the order by offering a competitive price for a core product that could only be serviced using their own very expensive spare parts.

Gillette did not invent a safety razor, but the company's market strategy helped it gain market share. Gillette razors were priced at 1 / 5th the cost of making them, but only Gillette razors were available, which retailed for 5 cents. The cost of making the blades was only 1 cent, and thus Gillette made huge profits after gaining the trust of the consumer. One of the best famous examples using such a strategy in last years was selling ink for home printers. Investigations by computer magazines have shown that although the price inkjet printers could be only 1,700 rubles, the cost of operating the printer for 18 months could reach 30,000 rubles. Even if the consumer purchased only two replacement cartridges per year, the cost of ink was significantly higher than the cost of the printer itself.

Combining several products into a set aims to offer consumers full set goods that can be sold at an attractive low price. It is a way to create value for consumers and increase the company's bottom line. This strategy is often used during periods of decline, when companies are particularly interested in maintaining sales. Combining products into one set can be extremely successful, especially when a company is bringing a mature product to market for the first time. For example. Amstrad successfully implemented this tactic when it entered the high-end audio market and unraveled the secrets of the technology, becoming the first company to sell a complete set of equipment including amplifier, tape drive and speakers. It was more than just a pricing strategy: it was a whole marketing strategy. In recent years, the telecommunications industry has successfully applied this tactic; initially with the sale of TV channel packages, and more recently with TV, broadband Internet access and telephone packages.

The success of the bundle strategy will depend on the projected increase in sales volumes and changes in margins. There are likely to be other cost changes such as savings in product handling, packaging, and billing costs. The long-term consequences and reactions of competitors should not be ignored. For example, how will consumers react if products are not bundled together? Will this lead to a noticeable decrease in sales? Will bundling be seen as a strategy for dealing with a poor quality product with long-term image implications? brand? Will competitors respond by offering their product kits? If they do, will the strategy be successful?

Combining items into one set is profitable in situations where some customers value one of the items in the set quite high, and the remaining items - just above or below cost. Other customers value both or all of the components of the kit relatively highly. Four film distribution companies A – D are willing to pay the following price for films X and Y:

The distributor's marginal costs for the delivery of each film are 480,000 rubles.

The distributor offers X and Y separately for 840,000 and 480,000 rubles. respectively, or a pair in a set for 1,260,000 rubles. As a result, A, C, and D rent the kit, while B only rents X because the cost of both the package and Y is greater than its estimated cost. The distributor's income will be 4,6200,000 rubles. (RUB 1,260,000 * 3 + RUB 840,000), and profit - RUB 1,260,000. (4,620,000 rubles - 7 * 480,000 rubles)

Company A may also choose to rent only movie X for £ 840,000, rather than purchasing the kit, since the additional cost of the package exceeds the estimated cost of movie Y. If A does make that choice, the distributor's profit will rise to 1,320,000. (1,260,000 rubles * 2 + 840,000 rubles * 2 - 6 * 480,000 rubles).

Bundling becomes especially effective remedy use of price differentiation. Buyers are offered a pricing structure in which they are charged a higher price for purchasing items individually (X + Y = RUB 1,320,000) than in a bundle (X + Y = RUB 1,260,000). Combining products into a set works as a selective technique, in which:

The set is used to maximize income from those consumers who value the set the most (in our example, C and D, who rated both films relatively highly)

Charging a relatively high price for separate item in a set that is highly regarded by some buyers (in our example, film X, which was highly rated by companies A and B)

If the distributor does not combine the products into a set, he will receive a profit of 720,000 rubles, since A and B will purchase X's film, and C and D will purchase Y's film.

Pricing subject to additional product options. Solution add additional options similar to the decision to combine products into one set. Most people would like to have additional options included with the product, but they may not be willing to pay the additional cost. Others do not need additional options and see them as an obvious disadvantage. This is probably the case with older consumers and electronic equipment. For older customers, mastering the equipment is time-consuming and does not need additional options that make equipment difficult to operate.

Using discounts. There are a number of reasons for using discounts to adjust prices:

Quick receipt of cash. This strategy is not always financially sound, as the company may lose more sales proceeds as a result of the discount than it would if it lost interest on a bank loan of the same amount.

Distinguishing between different types consumers, for example, wholesale and retail buyers, etc.

Increase in sales with the base price unchanged during a period of low sales.

For some industries it is normal practice to offer discounts, such as antiques, and some retail stores have regular sales.

Perishable goods are often discounted as they near end of life or at the end of the day, and sometimes it is the practice of selling a second similar unit for less. It may not be the most best strategy as it does not improve the company's image, and some consumers may take a wait-and-see attitude and postpone their purchases until the end of the day when prices are lower.

Exists following models the functioning of the company in the market.

The model for maximizing the profit of an enterprise is to obtain maximum results in the process of entrepreneurial activity with minimum costs and resources.

Sales maximization model. This model is used in conditions of unlimited demand by maximizing sales, allows you to maintain and increase the number of personnel, introduce new technologies and other achievements scientific and technological progress, strengthens the position of the enterprise in the market.

Maximizing enterprise growth by increasing assets. V modern conditions the implementation of this model often occurs through mergers and acquisitions by the given enterprise of other enterprises.

Economic sustainability of business structures.

Study economic processes at the enterprise level of the main link of the national economy is of key importance. It is at this level of management that it is necessary to deeply understand what opportunities each economic entity has to achieve sustainable (stable) and effective development of the economy. The solution of these problems by enterprises depends on sustainable effective development economics at all other levels of government. The economic sustainability of the enterprise's activities is also of paramount importance, which should be ensured on the basis of taking into account progressive phenomena. external environment and business improvement for efficiency gains and continuous development.

At all levels of management of economic structures, the main goal of the activity is to achieve sustainable development of the economy, which is characterized by an increase in the dynamics of the main statistical indicators (at the levels of the country, federal districts and regions) and final indicators (at the levels of the industry and enterprises) in certain sizes and in optimal ratio between them.

The main feature that expresses the concept of a sustainable effective enterprise economy is the achievement optimal size profit sufficient for the development of economic and financial activities on the basis of self-financing and the formation of its own working capital in an amount that allows for high growth rates of sales of goods, products, works and services at a level not lower than competitors.

Ensuring sustainable effective development of the enterprise's economy is reflected in the achievement of social, economic, technical and environmental goals based on the consistent implementation of the principle of responsibility to society.

The criteria and main indicators for assessing the sustainable effective development of the enterprise's economy are presented in Fig. 1

Sustainable effective development of the economy is a complex category that reflects the totality economic relations arising in the course of achieving development goals in the process of economic and financial activities of the enterprise.

Sustainable effective development of the enterprise's economy is determined taking into account the factors of the external and internal environment.

Rice. 1. Indicators for assessing the sustainable development of the enterprise economy

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The sales maximization model is probably the most widely known alternative to the profit maximization model. It is easy to understand and is supported by intuitively attractive real life examples. Rigorous empirical testing, however, does not support the sales maximization hypothesis. This is especially true for the long-term objectives of the company.

Scientists make a lot of arguments for why firms might prioritize cash receipts from sales.

1. Changes in sales require large changes in methods of trade and production technology, which will be justified by equivalent changes in profit margins.

2. The management of the firm may feel that the lack of sales growth is detrimental to the company's reputation and its relationships with consumers, financial institutions and employees.

3. The management of the firm may feel that the lack of increased sales will reduce the company's influence in the market and make it more vulnerable to competitors.

4. Since in most cases managers are employees, not owners of the firm, the assessment of the performance of its management staff will be more sensitive to the level of sales than to the level of profits (as long as acceptable levels of profits are maintained).

Proponents of the sales maximization model admit that some minimum level of profit is necessary, but they believe that a firm seeking to maximize sales would prefer to sacrifice some or all of its profits above a certain minimum in order to increase sales. Thus, Japanese firms attach great importance to increasing their influence on the world market, so they pursue a dumping price policy (i.e., they sell products abroad at prices lower than those set in their own country). Many believe this is a tactic directed against the United States. Japanese manufacturers of sophisticated microcircuits, for example, have been accused of dumping their products entering the United States directly or through intermediaries such as Hong Kong. While dumping can be effective in increasing one's market share, the practice is considered illegal in the United States.

Another example can be cited with the depreciation of the US dollar against the Japanese yen (second half of the 1980s). Logically, Japanese automakers would have to raise the price of their products sold in the United States in order to maintain their level of profits. Instead, they chose to keep the dollar price constant, agreeing to cut profits to maintain their market share. This behavior amounts to important factor in international trade. However, the nature of such facts suggests that here firms may sacrifice immediate profits in favor of maximizing distant ones. In this case, maximization of long-term profit is part of their strategy aimed at maintaining advantageous positions in competition that can bring large profits in the distant future.

Growth maximization model

In any company, growth tends to be seen as the cornerstone of corporate strategy. Growth and its potential serve as a measure of a corporation's success in its annual reports and in the financial press pages for its financial analysts and investors. According to the usual growth maximization model, once a firm reaches a level of output that sustainably maximizes profits, output should remain constant as long as costs and demand remain constant. According to this model, the company will have no reason to further increase production and sales.

In reality, of course, demand and costs do not remain constant, and the firm will strive to grow for the same reasons that maximize sales. Growth, however, must be financed by either income deductions or loans, and often both. Prudent managers strive to maintain a liability-to-asset ratio sufficient to stimulate growth, but below the threshold of unacceptable risk.

In the long term, the growth of a firm will be determined by the availability of a sufficient flow of profits. Obviously, whatever differences appear in the short-term interests of firms that maximize growth, sales, or profits, their long-term interests are likely to be the same. A decision to maximize growth will inevitably be a decision to maximize profits in the long run.

The main goal of an organization is to maximize its benefits in relation to costs. The behavior of a firm can best be described using profit maximization models... Since the value of a firm in the long run is determined by the flow of its future profits, the model must be developed in order to include the present value of future money (future profits) and the concept of risk. In the real world, there are many complexities that limit the adequacy of the model. This is because, in addition to the lack of comprehensive information, such a model requires that the firm can accurately predict the magnitude and distribution over time of the flow of future profits, which in best case it is very difficult to do, and at worst it is impossible. In addition, there are many legal, ethical and social constraints. Within these constraints, the firm strives to have an optimal profit. The models that are extremely important for understanding the behavior of the firm can be divided into four general class models : · Maximize sales; · Maximizing growth; · Managerial behavior; · Maximization of added value (Japanese model).

Sales maximization model is an alternative to the profit maximization model. Scientists make a lot of arguments for why firms might prioritize cash receipts from sales. 1. Changes in sales require large adjustments in trading methods and production technology, something will be justified by equivalent changes in profits. 2. The management of the firm may feel that the lack of sales growth is detrimental to the company's reputation and its relationships with consumers, financial institutions and employees. 3. The management of the firm may feel that the lack of increased sales will reduce the company's influence in the market and make it more vulnerable to competitors. 4. Because In most cases, managers are employees rather than owners of the firm, and the assessment of the performance of its management staff will be more sensitive to the level of sales than to the level of profits.

Growth maximization model... Growth and its potential serve as a measure of a corporation's success in its annual reports and in the financial press pages for its financial analysts and investors. In the usual growth maximization model, once a firm reaches a level of output that consistently maximizes profits, output should remain constant as long as costs and demand remain constant. In reality, demand and costs do not remain constant, and the firm will strive to grow for the same reasons that maximize sales. Growth must be financed by either income deductions or loans, and often both. Prudent managers strive to maintain a liability-to-asset ratio sufficient to stimulate growth, but below the threshold of unacceptable risk.

Managerial behavior model... Refers to the differences between owners and managers in different corporations. Models of managerial behavior include the managerial benefit model, the managerial prudence model, and the agency model. All of these models are based on the following basic assumptions: 1) both owners (shareholders) and managers are rational people trying to maximize their personal gain, and 2) there are fundamental contradictions between the interests of owners and the interests of managers, therefore, when managers try to maximize their benefit, they reduce the benefit to the owners .

3. Risk and uncertainty. Sources of business risk. Calculation of various risk parameters. Measuring the degree of risk. Probability distribution.

Risk- this is the likelihood of losses or shortfalls in income compared to the predicted option. Risk defines a situation when the occurrence of unknown events is probable and can be quantified; uncertainty- when the probability of occurrence of unknown events is impossible to predict and quantify in advance.

Based on this, the following decisions can be made:

1) Under certainty conditions, when the result of each of the alternative options solutions.

2) Decision made in conditions of risk - decisions with a known probability of obtaining each of the results.

3) A decision made in the face of uncertainty when it is impossible to assess the likelihood of potential results.

The nature of entrepreneurial risk is determined by the "risk-reward" relationship. Business (entrepreneurial) risk is due to the risk of the company's operating activities when it does not use borrowed funds.

The following main factors that determine the company's business risk:

1) The volatility of demand for the company's goods and services. The business risk of a company is the lower, the more stable the demand for its goods.

2) The volatility of prices for goods and services of the company. The more stable the prices of the company's goods, the lower the business risk.

3) The volatility of prices for resources attracted by the company.

4) The ability of the company to change the prices of goods in accordance with changes in prices for the resources involved.

5) Share fixed costs at the full cost of the company. The higher the proportion of fixed costs (depreciation charges, property tax, repair costs, administrative costs, etc.), the higher the business risk.

Business risk is measured as uncertainty of the company's future income from operating (main) activities or profit before interest and taxes (EBIT). The higher the standard deviation of the expected EBIT, the higher the business risk level of the company. The more closely the probabilities of future EBIT are distributed, the lower the standard deviation and the lower the level of business risk.

Business risk is the probability of failure, therefore, the criteria for assessing risk is the probability that the result will be less than the required value. The risk probability criterion is determined by the formula: R = P * ( Dt - D), where R - risk assessment criterion; R - probability; Dt - required result value; D - the result obtained. This method allows you to assess the level of risk only after receiving a certain result, and the entrepreneur is interested in the risk assessment at the decision-making stage. For this, the absolute value, determined by the formula: R = Y * P (Y), where where R - degree of risk; Y - expected damage; RU) - the likelihood of damage.

Risk degree – this is the probability of a loss event, as well as the amount of possible damage from it.

The risk may be: 1) acceptable – there is a threat of complete loss of profit from the implementation of the planned project; 2) critical – possible non-receipt of not only profit, but also proceeds and coverage of losses is carried out at the expense of the entrepreneur;

3) disastrous – loss of capital, property and bankruptcy are possible.

4. Organization. Isolation of essential features and modern approaches to its study: the key idea, basic concepts, instruments. New types of organizations: virtual, multidimensional, fractal, etc.

Organization is a group of people whose activities are deliberately coordinated to achieve a common goal or goals.

Key idea–Determination of the offered products (services), the place and role of the organization in the market; the goals of the organization; technology, basic views and values, strengths, competitiveness, responsibility to partners and consumers, image and appearance.

Introduction 3 1. The concept and essence of sales 5 2. The sales maximization model 12 3. Advantages and disadvantages of the sales maximization model 17 Conclusion 27 References 29

Introduction

The relevance of this topic lies in the fact that the larger the volume, the easier it is to buy and sell a large (or small) amount of goods. There must be a seller and a buyer to complete each operation. For a product, the seller must sell it; and in order to sell, there must be a buyer who will buy it. There can be some confusion here, because you can often hear the phrases: - "Sellers control the market." - "The volume of sales exceeds the volume of purchases." - "This is a day with a lot of shopping!" Buyers control the market when the price is pushed higher. The volume of purchases is the volume of transactions completed at the ask price. This is the lowest quoted price at which sellers are willing to sell. If someone buys at this price, this indicates that the product is in demand (by this market participant), and this is called the volume of purchases. Sellers control the market when price pushes lower. The volume of sales is the volume of trades passed at the bid price. This is the highest quoted price at which buyers are willing to buy. If someone wants to sell at this price, this indicates that the product is not in demand (by this market participant), and this is called the sales volume. Volumes are usually displayed at the bottom of the price chart. The purpose of this work is to study the content of the sales maximization model, its advantages and disadvantages. In this case, the following main tasks can be distinguished: - to consider the concept and essence of the volume of sales; - study the model of maximizing sales; - to identify the advantages and disadvantages of the sales maximization model. The object of this study is profit maximization. The subject is the content of the sales maximization model, its advantages and disadvantages. Scientific and practical significance work consists in the possibility of applying its results in practice. In the work, the works of such domestic and foreign scientists as: Akulov, VB, Basovsky, LE, M. Gordon, M. Jensen, U. Mikling were used. The work consists of an introduction, three chapters, a conclusion, a list of references.

Conclusion

The sales maximization model is the most widely known alternative to the profit maximization model. According to this alternative, when profits reach an acceptable level, some companies tend to prioritize revenue over profit. Sales revenue, according to the heads of such companies, reflects positive attitude buyers to the company's products, competitive position company in the market and its growth, and all these indicators testify to the viability of the company. If sales fall, any advantage a company has is undermined and its competitiveness diminished. In addition, managers of the company are interested in increasing sales, since there is much evidence that their wage has a closer relationship to the scale of a company's operations than to its bottom line. Thus, the sales maximization model cannot be used as the main target function of the enterprise. The advantages of this target concept of the enterprise is that it reflects the results of the activities of almost all of its main services - competitive advantages can be achieved through the development of a new product, improving the quality of goods and services, effective marketing, optimal pricing policy, reducing costs, etc. In addition, competitive advantages provide the formation of excess profitability (profitability) of the enterprise. At the same time, this target criterion for the functioning of an enterprise has a number of disadvantages: - the concept of "competitive advantage" is characterized by a number of indicators that are very difficult to integrate into a single measure; - competitive advantage characterizes the relative position of an enterprise within a specific industry, while a significant part of enterprises are diversified; - an enterprise can maintain a competitive advantage only in a relatively short period of time. Thus, ensuring competitive advantages can be seen as a task of the main functional systems management but not as the main goal of the functioning of the enterprise.

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