REply to students reponse below on risk and profit in 200 words
There are numerous risks a company must undertake in order to succeed in today’s economy and uncertainty, or risk, is always going to be present in daily business operations (Keat, Young, Erfle & Banerjee, 2018). For starters, every business needs to take a strategic risk by carrying out a detailed business plan and making adaptations based on the economy and demand of products (Blackman, 2014). Failure to plan properly or be willing to make major changes to the company when necessary may mean the difference between bankruptcy or becoming a multi-billion-dollar business. Compliance risk is another problem the company may face when ensuring that the firm is always complying will all necessary laws and regulations (Blackman, 2014). It is very important that companies stay up to date with the changing laws and be aware of the additional regulations associated with any extended product line especially when dealing with international laws. There is also the issue of operational risks such as when there is an unexpected equipment failure or a natural disaster strikes when not prepared (Blackman, 2014). These risks may involve a severe loss in revenue and customer reputation. Financial risk from costs, lost revenue, excess debt, or customers unwilling to pay could result in significant financial loss (Blackman, 2014). Lastly, there is always the risk of a damaged reputation within an organization, which could significantly affect the company’s revenue by causing employees to leave, suppliers to become less favorable, and sponsors to decide not to be associated with the business (Blackman, 2014). These are just a few of the common risks that companies must take in order to successfully grow their business.
A manager may contribute to the profit maximization goal of a firm by utilizing the profit maximization hypothesis to determine the optimal decision to make in managerial economics that could bring the company closer to their ultimate goal (Keat, Young, Erfle & Banerjee, 2018). For starters, if the company’s goal is to increase profit then the firm needs to price its products at a level where the revenue earned on the last unit of a sold product is equal to the additional cost of making the last unit so the firm’s marginal revenue and marginal cost are equal to the optimal price (Keat, Young, Erfle & Banerjee, 2018). The manager may also decide to move resources to different areas of the company that do not directly result in profit maximization but closer to the goal in the “long-run.” The key is to maximize revenue while minimizing costs by analyzing the changes in revenue and changes in costs for every additional unit sold.
Keat, P. G., Young, P. K. Y., Erfle, S. E., & Banerjee, S. (2018). Managerial Economics (7th ed.). Uttar Pradesh, India: Pearson India Education Services.
Blackman, A. (2014). The Main Types of Business Risk. Retrieved from https://business.tutsplus.com/tutorials/the-main-types-of-busi
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