Explain what is meant by profit maximisation by referring to Oakline Furniture. The business makes wooden desks and has received a large order from a chain ...
Question 1 Report
Explain what is meant by profit maximisation by referring to Oakline Furniture. The business makes wooden desks and has received a large order from a chain of offices. Its owner is considering longer production hours, higher selling prices and training new workers. Employees are concerned about workload and customers expect reliable quality.
(a) Explain what is meant by profit maximisation. [2]
(b) Identify one objective that supports profit maximisation. [1]
(c) Explain one possible disadvantage of extending production hours to meet the objective. [2]
(d) Which stakeholder may benefit most if profit increases? [1]
Answer Details
(a) Profit maximisation means seeking the highest possible difference between sales revenue and total costs. [1] It is an aim to earn as much profit as possible, not simply to increase sales, because sales may rise without profit rising if costs also rise. [1]
(b) An objective supporting profit maximisation is to reduce unit production costs by 8%. Increasing profit by a stated amount would also be valid. [1]
(c) Extending production hours may make workers tired. [1] Tired workers may make mistakes, reduce furniture quality, or become less motivated, potentially increasing costs or harming sales. [1]
(d) The owner or shareholders are most likely to benefit most from higher profit. [1]
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