The standard neo-classical assumption is that a business strives to maximize profits. Profit maximization is the process by which a firm determines the price and output level that returns the greatest profit, where marginal cost is equal to the marginal revenue. This assumption is made because despite the growing importance for market survival and frequent calls for corporate social responsibility, creating a profit appears to be the most significant single objective of organizations in our market economy. Economists' have used the traditional profit maximization theory as a matter of debate whether the firm survives and develops in order to provide a profit or makes a profit by which it can survive and develop. Any firm has to take into account how the market determines the price for goods or services which they supply. Do you agree? Why might a business firm pursue other objectives besides the objective of maximum profits? Why is profit maximization, by itself, an inappropriate goal?
The standard neo-classical assumption is that a business strives to maximize profits. Profit maximization is the process by which a firm determines the price and output level that returns the greatest profit, where marginal cost is equal to the marginal revenue. This assumption is made because despite the growing importance for market survival and frequent calls for corporate social responsibility, creating a profit appears to be the most significant single objective of organizations in our market economy. Economists' have used the traditional profit maximization theory as a matter of debate whether the firm survives and develops in order to provide a profit or makes a profit by which it can survive and develop. Any firm has to take into account how the market determines the price for goods or services which they supply.
Do you agree? Why might a business firm pursue other objectives besides the objective of maximum profits? Why is profit maximization, by itself, an inappropriate goal? What is meant by the goal of maximization of shareholder wealth? What objectives other than profit maximization might a firm pursue? Is this possible in a competitive world?
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