Traditional theory assumes profit maximisation as the sole objective of a business firm. In practice firms have been found to be pursuing objective other than profit maximisation. Large firms pursue such goals as sales maximisation, revenue maximisation, a target profit, retaining market share, building up the net worth of the firm, etc.
For example, seeking to increase market share, may lead to lower profits in the short-term, but enable profit maximisation in the long run. Profit maximisation Usually, in economics, we assume firms are concerned with maximising profit.
Higher dividends for shareholders. More profit can be used to finance research and development. Higher profit makes the firm less vulnerable to takeover. Higher profit enables higher salaries for workers See more on: Profit maximisation Alternative aims of firms However, in the real world, firms may pursue other objectives apart from profit maximisation.
Profit Satisficing In many firms, there is a separation of ownership and control. Those who own the company shareholders often do not get involved in the day to day running of the company. This is a problem because although the owners may want to maximise profits, the managers have much less incentive to maximise profits because they do not get the same rewards, share dividends Therefore managers may create a minimum level of profit to keep the shareholders happy, but then maximise other objectives, such as enjoying work, getting on with other workers.
Sales maximisation Firms often seek to increase their market share — even if it means less profit. This could occur for various reasons: Increased market share increases monopoly power and may enable the firm to put up prices and make more profit in the long run.
Managers prefer to work for bigger companies as it leads to greater prestige and higher salaries. Increasing market share may force rivals out of business.
Some firms may actually engage in predatory pricing which involves making a loss to force a rival out of business. Growth maximisation This is similar to sales maximisation and may involve mergers and takeovers.
With this objective, the firm may be willing to make lower levels of profit in order to increase in size and gain more market share. More market share increases their monopoly power and ability to be a price setter. Long run profit maximisation In some cases, firms may sacrifice profits in the short term to increase profits in the long run.
For example, by investing heavily in new capacity, firms may make a loss in the short run but enable higher profits in the future. This can ultimately help profitability as the brand becomes more attractive to consumers. Co-operatives Co-operatives may have completely different objectives to a typical PLC.
A co-operative is run to maximise the welfare of all stakeholders — especially workers. Any profit the co-operative makes will be shared amongst all members.Profit maximisation is not the sole. objective of business. Tags: Profit (economics), Economics, Marginal cost, Profit maximization By dfllifuran.
Essay about Profit maximisation is not the sole objective of business. Profit maximisation has been one of the main aims of the firms. The generally accepted view is the long run will wish to maximize profit. Hello Mate,profit maximisation as the sole objective of a business tranceformingnlp.com goal of every business should be to earn profits, this however should not be treate.
Profit maximisation is not the sole objective of business Essay Sample. Profit maximisation has been one of the main aims of the firms.
The generally accepted view is the long run will wish to maximize profit. The objective of Profit maximisation is to reduce risk and uncertainty factors in business decisions and operations. It acts like a benchmark of operational efficiency, survival and well being of the business organisations as it reflects the business decisions and policies.
Profit maximisation is not the sole objective of business. Profit maximisation has been one of the main aims of the firms. The generally accepted view is the long run will wish to maximize profit.