Economics Report: Firm Profit Maximization and Macroeconomic Factors

This economics report delves into the profit-maximizing behavior of firms and the influence of macroeconomic considerations and government policies on their decision-making. The report begins by outlining the economic objectives of firms, including profit maximization, sales maximization, and market share growth, alongside the macroeconomic objectives of governments, such as low unemployment and inflation. It then analyzes the short-run and long-run costs of a firm, using the example of potato production, and calculates revenue and profit under different scenarios. The report further examines the profit maximization strategies of a monopoly firm, illustrating this with a graph and explaining government interventions to address market failures. Macroeconomic considerations are explored through an analysis of Finland's GDP and economic growth, business cycles, unemployment, inflation, and the impact of fiscal and monetary policies. The report provides detailed tables and graphs to support its findings, offering a comprehensive understanding of the interplay between firm behavior and macroeconomic factors.

Running head: ECONOMICS
Economics
Name of the student
Name of university
Author note

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Table of Contents
1. Executive summary................................................................................................................2
2. Introduction............................................................................................................................2
3. Understanding the profit maximizing of the firm or business...............................................3
(a) Short run and long run cost...............................................................................................3
(b) Revenue of the firm..........................................................................................................4
(c) Profit calculation of firm..................................................................................................5
(d) Monopoly firm’s profit maximisation..............................................................................6
4. Macroeconomic Consideration and Government Policy.......................................................7
(a). Gross domestic product and economic growth of Finland..............................................7
b) Business Cycles and possible impacts on firm..................................................................8
(c) Unemployment and Inflation..........................................................................................10
(d) Fiscal policy....................................................................................................................13
(d) Monetary policy..............................................................................................................15
5. Conclusion............................................................................................................................16
Reference list............................................................................................................................17

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Firm’s Profit Maximisation Behaviour and Impacts of Macroeconomic Considerations and
Government Policies on its Decision Making.
1. Executive summary
The aim of the paper is to highlight the profit maximizing behaviour of the firm and impacts
of macroeconomic considerations along with government policies on it6s decision making.
The paper in the first part shows the macroeconomic objectives of the firms. It also what
interventions are taken by the government. The paper basically works on the price of the
agriculture goods and shows how the price is affected in both monopoly and perfect
competitive firms. The agricultural product that has been used for calculating is 100kg of
potato.
2. Introduction
Economic objectives of the firm
The main economic objective of the firms or business is to earn profit along with
other objectives which are necessary to be pursued for achieving the profit objective which
comprises of creation of consumers, regular innovations and the best possible usage for the
resources that are available. The main objectives of the firm comprises of the profit
maximisation, sales maximisation, profit satisfaction and increased in the market share. Profit
maximization takes place for making enough profit for keeping the owners comfortable.
Government macroeconomic objectives
Some of the macroeconomic objectives of the government are maintaining low rate
of unemployment and a good rate of growth of the economy. The other two macroeconomic
objectives of the government are balancing the Balance of Payments and maintai8ning low
rate of inflation.

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Objective of report
The main objective of the report is to find the profit maximising behaviour of the firm
ad how the government policies impacts the macroeconomic variables.
3. Understanding the profit maximizing of the firm or business
(a) Short run and long run cost (Potato 100kg)
Table 1: Short-and long-run cost of the firm
(potato)
Q TFC ($) TVC ($) TC AFC AVC MC AC
0 20 0 30
1 20 10 50 20 10 20 50
2 20 30 67 10 15 17 34
3 20 50 82 7 17 15 27
4 20 80 102 5 20 20 26
5 20 100 132 4 20 30 26
6 20 250 172 3 42 40 29
7 20 300 222 3 43 50 32
8 20 350 282 3 44 60 35
9 20 500 352 2 56 70 39
10 20 530 437 2 53 85 44

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(b) Revenue of the firm
Q P TR AR MR
0 100 0
1 95 95 95 95
2 90 180 90 85
3 85 255 85 75
4 80 320 80 65
5 75 375 75 55
6 70 420 70 45
7 65 455 65 35
8 60 480 60 25
9 55 495 55 15
10 50 500 50 5
Q P TR AR MR MC TFC TVC TC AC
0 100 0 20 0 30
1 95 95 95 95 20 20 10 50 50
2 90 180 90 85 17 20 30 67 34
3 85 255 85 75 15 20 50 82 27
4 80 320 80 65 20 20 80 102 26
5 75 375 75 55 30 20 100 132 26
6 70 420 70 45 40 20 250 172 29
7 65 455 65 35 50 20 300 222 32

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8 60 480 60 25 60 20 350 282 35
9 55 495 55 15 70 20 500 352 39
10 50 500 50 5 85 20 530 437 44
(c) Profit calculation of firm (potato in 100kg)
Firm’s profit calculation
Table 3: Profit of the firm (potato)
Q TR TC PROFIT
0 0 30 -30
1 95 50 45
2 180 67 113
3 255 82 173
4 320 102 218
5 375 132 243
6 420 172 248
7 455 222 233
8 480 282 198
9 495 352 143
10 500 437 63
Understanding business/firm’s profit maximisation behaviour

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(d) Monopoly firm’s profit maximisation
`One of the significant characteristic of a monopolist is maximization of profit. The
profit maximization level of the monopolist can be found by equating the marginal revenue
with the marginal cost. For determining the level of the profit maximization, the monopolist
should supplement its information about the prices and demand with data on its cost of
production. There is a presence of only a single firm that produces the product. One of the
characteristic of the monopoly firm is to maximize the profit. Since there is absence of any
kind of competition in the monopolist market, it can set the price level and the amount of
quantity demanded. The output level which will be maximizing the output of the monopoly is
usually calculated by equating the marginal cost with the marginal revenue.
(i) Graph

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Q AC MC AR MR
0
1 50 20 95 95
2 34 17 90 85
3 27 15 85 75
4 26 20 80 65
5 26 30 75 55
6 29 40 70 45
7 32 50 65 35
0 1 2 3 4 5 6 7 8
0
10
20
30
40
50
60
70
80
90
100
Chart Title
AC MC AR MR
The graph above shows that the average revenue is downward sloping and the profit
maximizing output will be at that point where the marginal revenue will be equal to
the marginal cost.

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(ii) Explanation of firm’s profit maximisation behaviour
The firm maximizes the profit by operating at that point where the marginal revenue
will be equal to the marginal cost. During the short run a change in the fixed cost will having
no effect on the profit maximizing output of the firm. the firm will be treating the short-term
fixed cost as the sunk cost and will continue to operate as before.
(iv) Interventions by the government for addressing market failure
Using information from the graph explanation of government interventions to address
market failure associated with a monopoly firm. An assumption in case of classical
economics is made that the firms will be able to maximize profits. The value of the profit can
be calculated by finding the difference between the value of the total revenue and the total
cost. The profit maximization takes place at the biggest gap between the total revenue and the
total costs w3here the marginal cost of the product will be equal to the marginal revenue of
the product.
4. Macroeconomic Consideration and Government Policy
(a). Gross domestic product and economic growth of Finland
Table 4: GDP and growth of (Finland), 2005-2015
YEAR GDP ($million) * GDP growth (%) **
2005 204000 5.88
2006 216000 18.06

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2007 255000 10.98
2008 283000 -11.31
2009 251000 -1.20
2010 248000 10.48
2011 274000 -6.20
2012 257000 5.06
2013 270000 1.11
2014 273000 -15.02
2015 232000 -100.00
b) Business Cycles and possible impacts on firm
The business cycle is termed as the trade cycle which is the downward or the upward
movement of the gross domestic product around the long-term growth trend. The business
cycle length is the period of time which contains a single boom and contraction in the
sequence. Business cycles can be measured by considering the growth rate of real gross
domestic product. The usage of the boom and bust cycle states the fluctuation in which the
expansion is rapid and the contraction is severe. The business cycle is a kind of irregular
upward or downward movement of the economic activity which can be measured by the
fluctuations in the real gross domestic product and the changes macroeconomic variables.
The four phases of the business cycle are recession, recovery, growth and decline which will

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repeat themselves over time. Some of the firms use the model of the business cycle and
terminology to study and explain the fluctuations for the inventory of the business. During
the phase of expansion the business will be growing and creating more jobs which result in
the rise in employment and decrease in the rate of unemployment. When the economy will be
growing at a much faster pace. When the expansionary phase of the business cycle is about
to end, there will be a result of peak in the market. When there is an economic peak, the
economic will be no longer growing and the retail sales will be declining and economic
output will be decreasing in nature. The contraction phase of the business cycle take place
when the economy begins to shrink. In the case of economic contraction period there will be
not enough currency circulating in the economy since the spending of the consumer will be
low. The fourth phase of the business cycle is the phase of recovery which states that when
the output of the economy will increase, the business will begin to expand which indicates
that the business cycle will be in the recovery phase. During this rate the rate of employment
will be rising and unemployment rate will be going down.
(i) Graph

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1 2 3 4 5 6 7 8 9 10 11
-50000
0
50000
100000
150000
200000
250000
300000
Chart Title
YEAR GDP ($million) * GDP growth (%) **
Graph drawn using the values from table 4
(c) Unemployment and Inflation
Table of unemployment and inflation rate
(c) Unemployment and Inflation
Table 5: Unemployment and inflation rate of (Finland), 2005-
2015
YEAR Unemployment rate (%) Inflation rate
(%)
2005 8.38 0.624
2006 7.72 1.567
2007 6.85 2.511
2008 6.37 4.066
2009 8.25 0