Profits earned by an organization have a limit. The capital structure of an organization determines the profit levels which can be achieved. Profits are made when revenues exceed costs and there are many factors that determine the revenues as well as costs involved in trade (Boland, 2005). Over-exploitation of resources to earn more profits can lead to exhaustion. The management of an organization should balance all the factors of production to ensure that resources are not over-utilized. There is a limit to which resources can be used to achieve the goals set by an organization. Exceeding performance beyond the set limit causes exhaustion and this may affect the future profits made by the organization.
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Micro-economic and macro-economic factors also hinder the profits earned by an organization. Inflation in an economy determines the number of profits earned by organizations. Government regulations such as price floors and ceilings, tax systems, and other control mechanisms regulate the number of profits made by organizations in an economy. The entry of new firms in a competitive market environment limits the number of profits earned.
As more companies enter the market, abnormal profits are shared among the firms in the market and this reduces the number of profits generated. The size of the market also determines the profits to be made by an organization. Firms operating in a small market cannot make a lot of profits because there is a limited amount of customers (Crew, 1994).
Boland, D. (2005). Profit – Its definition. Web.
Crew, M. A. (1994). Incentive regulation for public utilities. Springer. ISBN 079239495X, 9780792394952.