Answer to Question #143597 in Economics for Ahmed

Question

The shareholder of Al-Karam wants to maximize his profits by selling his goods in the larger quantities. In order to achieve his target (s) he hired a manager to look after his business. However, the manager instead of maximizing business profits started maximizing his own interest by selling the designs in black to the competitor’s designers. Analyze the above situation and explain the possible problem that might occur for Al-Karam.

Answer 1

To maximize profits the firm should produce such quantity, at which marginal revenue equals marginal cost. In this situation profits are not maximized, besides his profits may even decrease, if the firm produces more than profit-maximizing quantity is.