Why firms in perfect competition would be able to make normal profits only in long run?
In perfect competition there is free entry and free exit to each firm when the firm see that in the long run they faces the loss the leave the production. Thus the quantity is decrease in the economy and there prices are increase in the economy. So in long run no one want to make loss and if some one get extra ordinary profit thus the other firm are entering in this production process. So with the increase in supply the prices goes dawn. Thus the firm come back on the normal profit. SO in long run the normal profit is the break even/shut dawn point of the firm.
What’s more important to a business, revenue or profits?
In the end, profits will be more important. This is simply because the main goal of a business is continuity, which can be achieved by making profits. A company that does not make a profit is less likely to continue business.Sometimes however, profits are not the main goal. In startups for example, initial starting costs can be a lot higher than the incoming cashflows. Companies like spotify have had a hard time making profits in the very early days, as well as many other companies. The reason the owners or the investors initially do not care is because it is not reasonable to expect profits. This can go on for a few years. The mere presence of a (expected) good level of reveneu might be the indication that the company will be profitable in the near future as the customer base grows and processes become more efficient. Ofcourse, the company is expected to be profitable in the end, but a good revenue soothes investors for the time being and gives hope for the future.
Why can't a business in a perfect competition decrease its price in order to attract more demand?
Vilnis Krumins answer is correct. Under perfect competition, the result of intense competition for market share between producers has driven price downward to the minimum point of the long run average cost curve. Hence, any firm that tries to lower its price (necessarily below its cost of production) may attract more demand at that time, but will be making losses (because revenues are not even covering costs) such that it would be unsustainable and will be forced to exit the market. It's as simple as that.
Why does competition force firms to use the least-cost, most efficient, productive techniques?
Competition effects numerous factors in the functioning of firms. The main concern of a firm is to make as much money as possible. First, competition for resources to make the products can cause the profitability of producing a good to go down. If someone else can buy cheaper the resources needed to make a product, they gain a comparative advantage. Second, unless a firm is a monopoly, controlling the price of the good they produce since they are the only ones who produce it, the prices are usually controlled through a competitive market. That means that other producers are trying to reduce the prices that they are selling their goods to the consumer in hopes of drawing in their business. If you sell an overpriced good, people will stop shopping with you and your unit sales will go down. Third plays into both of those. The cheaper you can buy your resources and produce your good (labor), the lower the price you can sell the finished good to consumers whilst maintaining your profit margin. Basically, competition forces firms to use least-cost and most efficient production techniques in order to maintain profitability. If you are losing money because you are buying expensive resources and using high-paid workers but no one is buying your good, then you are not producing efficiently.
Do any firms/companies/businesses use the mathematical formulas in economics to maximize their profits or is it always intuitive?
Not so much intuitive as determined by competitive market forces. No matter what the formula for optimal profit may say, if you sell too much above your competitors price, you wont sell very much and go broke.At the same time, if you sell too cheap you may well be making a loss and even though you sell lots, you will go broke.But yes, within those bounds a formula can be helpful to find the sweet spot. For example, for a given production cost, is it better to sell 1,000 units at $x, or raise the price to $x+5% and sell 920 units?Once the decision has been made thought, it is very important to monitor what actually happens with sales and make any adjustments accordingly.
What businesses have the largest margins?
Companies with a strong brand - I always think that business that revolve around effective marketing and the release of small amounts of stock and regular intervals eg. Supreme have the largest margins.The T-shirt’s said firm sell cost as much as Next pay to produce but can sell them at 10x the price due to the massive excess demand, which is rationed.