week 13, Please Please help, would rate. All questions please. Maximizing profit

Question

week 13,

Please Please help, would rate. All questions please.

Maximizing profit for a business. An article in the Wall Street Journal discussed the financial results for BlackBerry, the smartphone and software company based in Waterloo, Ontario. "Revenue tumbled 32% from a year earlier to $658 million in the quarter ended May 30 from $966 million a year earlier.... BlackBerry posted profit of $68 million up from $23 million a year earlier." 1. How is it possible for BlackBerry's revenue to decrease but its profit to increase? 2. Doesn't BlackBerry have to maximize its revenue to maximize its profit? Briefly explain

Explanation / Answer

(1) Profit equals Total revenue less Total cost. So, if revenue falls but total costs falls by a higher amount (either from a decrease in unit variable cost and/or a decrease in fixed costs), profits will increase.

(2) Revenue maximization and profit maximization are separate goals. Profit is maximized when a firm equates its marginal revenue to marginal cost, and revenue is maximized when a firm charges a price corresponding to the midpoint of its demand curve. Therefore, to maximize profits, revenue maximization is not necessary.

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