Profit Maximisation Essay Sample

Profit Maximisation Pages
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Is profit maximisation inconsistent with smooth adjustments to increasing scarcity?

The smooth adjustment to increasing scarcity implies the gradual technological advancements. The modern economic theory suggests that such advancements are necessary in order to maintain a feasible production.

Figure 1. The price of product as a signal of recourse scarcity.

(p. 35 Principles of Environmental Economics: Economics, Ecology and Public Policy, Ahmed M. Hussen; Routledge, 2000)

S0 – current level of supply

MPC – marginal private cost

MSC – marginal social cost

D – demand

MPB – marginal private benefit

MSB – marginal social benefit

S1 – increased supply

It is extremely difficult to predict the future demand, especially the sustainable demand.

Figure 4. The sustainable consumptions curves.

(p.24 Towards sustainable consumption: an economic conceptual framework. OECD 06.17.02)

The research showed that the current consumption pattern that takes a U shapes due to the discounted capital is not sustainable. Only in case, where technological progress will compensate for technological progress and the depreciation of the broadly defined capital the consumption could reach a sustainable pattern. Sloping downward.

These technological changes are also important if we consider the supply side.

Figure 2. Capital/resource substitution.

(p. 55 Principles of Environmental Economics: Economics, Ecology and Public Policy, Ahmed M. Hussen; Routledge, 2000)

In this case the production can be represented as a following function: Q=f(N, K, T), where Q -output; N I- an input of natural resources; K- capital, T – the current techniques of production (p. 55 Principles of Environmental Economics: Economics, Ecology and Public Policy, Ahmed M. Hussen; Routledge, 2000)

  • Figure A. This is situation is more close to the renewable resources. Still to be able to stay competitive the companies have to increase demand by bringing cheaper products to the market. For that they have to be able to cut costs.
  • Figure B. The slope of the curve increase. It means that it will cost more to make a transition form point C to point B and from point B to point A. It means that companies have to be extra careful to invest in advance in more efficient techlologies or resource substitutes.
  • Figure C represents the extreme case where capital does not matter and any decrees in the required resource N will force to decrease production.

Figure 3. Technological advances.

(p. 58 Principles of Environmental Economics: Economics, Ecology and Public Policy, Ahmed M. Hussen; Routledge, 2000)

There are two ways in which the company can deal with the resource scarcity.

  • It can either introduce the new resource that is not scare or can be renewed. It means that the one unit of resource may be compensated by fewer units of capital.
  • It can introduce the more efficient technology; in this case fewer units of resources will be needed for the same level of output.
  1. Principles of Environmental Economics: Economics, Ecology and Public Policy, Ahmed M. Hussen; Routledge, 2000
  2. Towards sustainable consumption: an economic conceptual framework. OECD 06.17.02
  3. You Can’t Eat GNP: Economics as If Ecology Mattered, Eric A. Davidson; Perseus Books 2000
  4. Citizen Participation in Resource Allocation. Mark D. Robbins, William Simonsen; Westview Press, 2000
  5. Environmental Conflict. Paul F. Diehl, Nils Petter Gleditsch; Westview Press, 2000
  6. Free Market Environmentalism. Terry Lee Anderson, Donald Leal; Palgrave, 2001
  7. How Many People Can the Earth Support? Joel E. Cohen; Norton, 1995
  8. Ecological anthropology Hardesty, Donald L. 1977. New York: John Wiley.

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