M is deducted because it is an expenditure and is also a deductible one for tax purposes. Baumol cites evidence to suggest that short-run revenue maximisation may be consistent with long-run profit maximisation.
This is unrealistic because no firm can sell anything to the consumers.
The time period In the short run, basic goals such as survival may dominate, while in the long run more challenging goals may dominate, such as maximising shareholder value, or introducing environmental goals.
In desperate times, firms may be forced to sell off assets to keep their creditors at bay. It gives a strong position to dominate the market in the future. They should charge the price according to the quality of the goods and services provided to the consumers.
Ethical goals Increasingly, firms are introducing ethical goals such as those associated with the environment and carbon emissions and with fair trade.
The business should also provide equal opportunities to all the employees to work and progress. For example, giving training and long-term job security to its workers.
Reconciling Short and Long-term Profitability: This sales maximisation output OK is higher than the profit maximisation output OQ. But the staff emoluments OS1 are maximised. Its empirical base is too limited to provide the details of theorising. For example, starting a price war can lead to lower profits but enable higher sales.
Init launched Tesco. They should also be provided with the benefits of provident fund, pension and other amenities like medical facilities, housing facilities etc.
For example, in a hairstyling salon, Marissa and Joan both work as assistants to the stylists. Thus the managers are interested not only in their own emoluments but also in the size of their staff and expenditure on them. Over its whole life the firm will have the following stream of revenues: He will, therefore, retain a higher proportion of total profits for the expansion of the firm.
He wants to maximise satisfaction and keep his efforts and output below the level of maximum profits. Applying this goal requires quantitative methods or measurable objectives, to maximize owner wealth.
Economic theory suggest that a price can be identified which achieves this goal. Minimize Opportunity Costs Opportunity costs refer to the sacrifice made when one option is chosen over another.
Thus f Discretionary investment, Id: It is a necessary payment for an entrepreneur to stay in the business. Second, to say that an entrepreneur maximises his satisfaction is a perfectly general statement, it says nothing about his psychology or behaviour. After all the ambition of an entrepreneur to make money cannot be dampened by a rising income.
Employees should be given fair wages and incentives for their work done.
The term social justice indicates uniform rights and equality to all the sections of the society. These conflicts will become clearer once the main goals are analysed in subsequent pages. Employees always want to grow and prosper. But an entrepreneur does not aim at profit maximisation.
Survival is the primary and fundamental objective of every business firm. Thus, the justification for profit maximization depends upon the nature of competition. Example - Tesco When Tesco started at the end of the First World War its co-founder, Jack Cohen, was likely to have been more concerned as a sole trader with day to day survival.
In times of business recession, it becomes difficult to earn satisfactory profits. This can help the objectives of worker satisfaction and in the long run, contribute to the improved performance of the firm.
Sales revenue maximisation Maximising total revenue means gaining the maximum possible revenue from selling a product. Increasing market share may force rivals out of business. The aspiration level defines the boundary between satisfactory and unsatisfactory outcomes. Hence to survive in the competitive world, the business has to be innovative.
Higher profits enable a firm to pay higher wages, more dividends to shareholders and survive an economic downturn. But at times there may be harmony of interests.Oct 22, · A2/IB 10) Objectives of Firms - Profit Max, Rev Max, Sales Max, Satisficing - What are the objectives of firms?
Why might firms. Economic Objectives of Firms Profit maximization Profit maximization is the process of obtaining the highest possible level of profit through the production and sale of goods and services. Profit is the difference between the total revenue a firm receives from selling output and the total cost of producing that output.
A business has a variety of potential objectives from profit maximisation to cultivating good relationships with various business stakeholders. Economic theory often assumes that firms are rational profit maximisers.
However, in the real world, there are many other objectives that a firm can pursue.Download