Remake of My luminous grid by Rachna Shukla https://padlet.com/rachna_shukla15/bclpb8cxsng0 Made with panache en-us 2018-11-05 15:14:31 UTC 2019-10-06 09:01:14 UTC hello@padlet.com The BIG QUESTION Is profit maximization the key objective of all firms in modern day economies? rachna_shukla15 https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/300513434 2018-11-05 15:15:16 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/300513434 Neha https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393858664 In the conventional or classical theory of the firm, the principal objective of a business firm is profit maximization. In this theory, maximum profits refer to pure profits which are a surplus above the average cost of production. It is the amount left with the entrepreneur after he has made payments to all factors of production, including his wages of management. The rules for profit maximization are (1) MC = MR and (2) MC should cut MR from below. However, even though profit maximization might be one of the key objectives in certain firms, it need not necessarily be one of the key objectives in all firms, the basis of the difference between the objectives of the neo-classical firm and the modern corporation arises from the fact that the profit maximization objective relates to the entrepreneurial behavior while modern corporations are motivated by different objectives because of the separate roles of shareholders and managers (the principal-agent problem). Under the managerial theory, key business objectives include sales maximization, growth, revenue maximization, and managerial utility maximization, while the behavioral theory highlights the objective of profit satisficing over profit maximization as a method of resolving the principal-agent problem. An example of an enterprise that does not have profit maximization as one of its key objectives would be Amazon, Amazon's 4 key objectives include customer focus rather than competitor focus, innovation, efficiency, and long-term thinking. Moreover, not all firms enter the market with a profit motive, social enterprises are organizations with mainly social objectives that reinvests most of its profits into benefitting society rather than maximizing returns to its owners eg: SELCO in India, which is a social enterprise that provides sustainable energy solutions to low-income households and small businesses.]]> 2019-10-05 06:05:16 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393858664 Dion https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393859889 Standard economic theory of the firm assumes that firm behaviour is guided by the firms goal to maximize profit. Profit maximization involves determining the level of output that the firm should produce to make profit as large as possible. But even if all firms behaviour is driven by profit, some firms total revenue may not be enough to cover all costs. In such cases, firms would go out of business soon and would rather have other objectives than profit maximization. It would be interested in producing that output that would make their loss as small as possible. Other economic theory suggests that separation of firm management from firm ownership, which increasingly dominates business organisation, has meant that firms objectives change. While profit maximization may be the dominant motive of traditional owner-managed firm, firm managers who are hired by the owners to perform management tasks may be more interested in increasing sales and maximizing the revenues that arise from larger sales. This is referred to as Revenue/ Sales maximizing. Other approaches assume that firms may be interested in growth of their business rather than profit maximization. Growing firms can achieve economies of scale (lower
average costs due to increase in scale of production), greater market power, etc. Likewise, when owners hire separate managers to run the business, the goals of the business might revolve around the maximization of their own utility. This is referred to as Manager utility maximization. In conclusion, modern day firms do not have only profit maximization as the traditional theory would suggest, but try to benefit in many other aspects of the business. ]]> 2019-10-05 06:22:09 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393859889 Aaliyan https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393869219 Most assume that profit maximization is the key objective of all modern-day firm. Profit maximization involves determining the maximum level of output needed to make the largest profit possible. Assuming this to be a key objective makes sense because money is attractive and it is what funds economic activity, and profit can also be used as a factor to show which firm is most dominant. However, this is a greatly misunderstood concept, Profit is just another factor among many other possible key objectives. Sunrise firms entering the market or even old firms could want to gain more market share, this goes against profit maximization as to be able to gain more market share firms would set policies such as; penetration pricing or higher advertising, and such policies would increase costs or decrease revenue. However, setting a key objective of increasing market share could possibly lead to better performance of the business in the long term and increase long term profits. 

Additionally, firms could be suffering from the Principle Agent Problem. Which is when the owners and the managers of the business have different objectives for the firm. The owners of the company usually would want a larger return of their investment which can result from higher profits, but the managers would aim for a higher revenue because higher revenue means higher salaries or commissions. This proves that a firm’s objectives change. 

Furthermore, Non-Profit Organisations such as Alzheimer's Association or the Worldwide Fund for Nature. These would mainly aim to be environmentally and try to increase social benefits. 

]]> 2019-10-05 08:13:19 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393869219 David https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393872986 Classical economists did believe that profit maximization was the key objective that every firm set to achieve, in which firms would determine the maximum level of output to maximize the level of returns to the business. However, if all firms did have profit maximization as a key objectives, firms that had a TR that was less than the TC would end up being out of business because of the heavy losses they would have to incur, leading to Zero profits. Modern day firms on the other hand have slightly different business objectives like Revenue Maximization (managerial), Satisficing (behavioral), etc. 

Revenue maximization for example is when firms seek to increase their revenue, because of the assupmtion that once the revenue increases, profits would automatically increase at a faster rate compared to costs. by selling at the greatest sales revenue point, the marginal ravenue attained by the last marginal unit would be zero, meaning that resources are being allocated in the most efficient manner and profits will be at the highest.

Another example for businesses that dont have profit maximization as the key objective are social enterprises. These firm tend to maximize their MSB over the MSC, to produce goods and services at a socialy optimum point. Such firms invlolve NGO's, Charity organizations etc. for example ImpactHub, the clothing bank, nicro, SHONAQUIP, food and trees for Africa etc. 

All in all, profit maximization as previously stated may have been only an assumption as a key objective of all firms, but as more firms are tending to alternative business objectives like sales maximaization, customer satisfaction and loyalty (AMAZON GLOBAL), it is safer to say that profit maximization is not the key objective but one among many objectives that a modern day firm will operate on.]]> 2019-10-05 08:47:59 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393872986 Mariha https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393915546 In the modern day economy, we are surrounded by a whole different corporate world in which many firms believe in being socially responsible and growing further and being diverse.
Profit maximization was a classical approach to the goals of firms, assuming that businesses focused on the price of their good as well as its output to reach their maximum level of output however in recent times firms have adopted various different objectives such as; growth maximization, sustainable & eco-friendly production  and higher employee welfare.
So to answer the question, not ALL firms have profit maximization as their key objective in the modern day economy, a majority is now diverting their attention to other aims and implementing that business-wide.]]> 2019-10-05 13:41:56 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393915546 Seth https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393931429 Profit maximization occurs when a firm’s total sale revenue is furthest above total cost which is when MR = MC. Firms are owned by its shareholders and managed and controlled by the managers, managers must gain enough or maximize its profits so it can satisfy shareholders.  Higher profit usually means higher dividends for shareholders, higher profit enables higher salaries for workers and more profit can be invested into further research and development. 

However, managers may want to take a different approach rather than maximizing firms profits as suggested by the shareholders, this is when the principal agent problem arises which revolves around how best to get your employees to act in your interests rather than their own.  This leads to totally different objectives set by managers and shareholders, Managers may want to prioritize and maximize managerial objectives such as revenue, growth, and sales maximization rather than profits. Due to the separation of control, managers create a minimum level of profit sufficient enough to keep the shareholders happy, as the same time maximizing other managerial objectives also known as profit satisficing. 


]]> 2019-10-05 14:59:23 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393931429 Maha https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393931994 Profit maximization is a figment of the classical economist imagination. 
Profit maximisation is when firms maximise their profits through sales and increasing the price of products.  Profit maximisation occurs when total sale revenue is furthest above total cost which is when MR= MC.

In the modern day economy, it is believed that profit maximization is not the sole objective of all firms, in fact there are other aims and objectives that firms now focus on, for instance, sales maximization, achieving customer satisfaction, growth, sustainability etc. 

It is proven that the objectives of the businesses keep changing as per their size and stage of market. For instance, when a business grows in size, its objective may change from just earning profit to increasing its market size and making greater sales of its units produced. Similarly, if a business is new and heavy competition is present in the market, the objective of the business may be to survive and make its presence felt, even if it has to sell at break-even prices

An important concept is the corporate social responsibility objective. Organizations must meet many social responsibilities. For example, society expects businesses to serve them goods and services of the quality or prices they demand, and consumers expect businesses to consider human rights, animal rights and the environmental impact of said goods. For example, when organizations follow policies to purchase natural extracts from third-world countries that are experiencing economic strife, they may achieve their goal of delivering safer products to their customers while lifting the economy of those countries. Some organizations, such as Unilever and Shell, respond to social responsibilities by setting up programs in disaster-stricken areas of the world.

These examples hence prove that profit maximization is not the only objective a firm seeks.
]]> 2019-10-05 15:01:55 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393931994 Rohan https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393954958 Profit maximisation is where the difference between TR and TC is the greatest or where MR=MC. Profit maximisation is determining the level of output where the firm can make the largest amount of profit. 

This is an important goal for firms as profit maximisation allows the firm to maximise the value of shareholders. If shareholder value is maximised, then more people will look to invest in the firm. Maximising profits provides the firm with finance to invest in R&D, which will help them develop new products faster than other firms in the market. This will allow them to build a larger customer base and increase their market share. Higher profits also make the firm less likely to be taken over. This is an advantage because the original owners get to retain control of the firm. 

While profit maximisation is an important objective of firms, there are other objectives that are just as important, if not more. For instance, a firm does not always maximise profits. In certain cases, a firm does not have enough revenue to make profit, therefore it makes a loss. In this case, the firm’s objective would be to minimise its loss, therefore, it would produce the amount of output that allows it to do so. Firms can also have objectives to maximise their growth. They would want to achieve growth maximisation because it allows them to achieve economies of scale and reduce its average costs. It can also diversify into various markets, so that it is not solely dependent on selling one product. As a firm grows, it will have greater market power, giving it the ability to influence prices. 

In conclusion, while profit maximisation is a key objective, it may not be the sole objective of all firms in the economy today. ]]> 2019-10-05 16:44:51 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/393954958 Tianna https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/394046871 All firms, regardless of size, all have the same tendencies to acquire a successful business. 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, and usually, firms tend towards this assumption when it comes to fixing objectives, but in this day and age, profits are not the only thing businesses focus on. Other aims could be sales maximisation, increased market share/market dominance, profit satisficing, and co-operatives. Social/environmental concerns however, are a growing objective of firms mainly because our society is headed towards a more socially responsible future, and this changing mindset impacts business decisions greatly. Surely, profits are just one of the many aspects that firms look at, but at the end of the day, objectives will evolve to meet the changing economic conditions depending not only on the size of the corporation itself, but also on the various stakeholders.]]> 2019-10-06 04:30:52 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/394046871 Esha https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/394072248 Theoretically, according to traditional economic thinking, firms are rational entities and would aim to maximize their profit. However, in reality they may have a variety of different objectives. According to behavioral economics, firms may follow a policy of profit satisficing, where the board of directors aim to obtain a minimum level of profit that would keep shareholders satisfied but they don’t aim for the maximum profit they can obtain when MR=MC. This is caused by the divorce of ownership from control and the principle agent problem, in which there is a separate entity, the agent, who makes decisions for the principle. But due to factors like bounded rationality and moral hazard, the agent is unable to make the best decisions for the principle. Hence this often means that firms don’t maximize profit in real life. 
Moreover, many corporations may wish to pursue revenue maximization or growth maximization to increase market share or increase growth. This objective is especially important for firms entering new markets, as they may use techniques such as penetration pricing to capture the market. This may mean that they are unable to maximize profit. Moreover, corporations may have social objectives such CSR or changing brand image (BP wanted to change its brand image to mean “Beyond Petroleum”). This means that all firms may not wish to maximize profit.]]> 2019-10-06 09:01:14 UTC https://padlet.com/rachna_shukla15/bclpb8cxsng0/wish/394072248