Evaluate Whether Profit Maximisation Is Always the Most Important Objective of Firms. (25 Marks)

In: Other Topics

Submitted By ldraper
Words 879
Pages 4
Profit maximisation in the short run occurs when marginal revenue is equal to marginal cost. This means the firm produces until the last unit produced has revenue equal to its cost and is shown in the diagram below.

Whether a firm will always aim to profit maximise will depend on a number of different reasons, firstly the criticisms with MR=MC are that it is difficult for a large firm to estimate their demand curve for their thousands of products, no matter how much market research they put into to try to find this it will be almost impossible, because of this it will therefore mean that there is no way a company can find the point at which MR=MC and therefore will not be able to say at X number of units sold we will be profit maximising and therefore in reality a firm's goals are to aim to get as much profit as they can. Also it is difficult to determine the period of time the firm would wish to maximise over, both the MR and MC curves will both change over time and therefore will make it again hard to be able to tell the exact time at which a business is profit maximising. Also different companies have different objectives, the stakeholders of a company will also play a large part in determining whether a company will aim to profit maximise, for example in a PLC where the company is owned by shareholders then the idea of profit maximisation is a good one, as shareholders will be more interested in how much profit the company they have invested in has made and how much they will get in terms of dividends than how many sales the company has made in the past year, however if the managers were the largest stakeholders in the company then they may look to sales or revenue maximise as opposed to profit maximise as some companies may judge their managers in terms of sales figures and their earnings may be directly linked to this.…...

Similar Documents

Social Objectives of a Firm

...Social Objectives: The social objectives of business are gaining more and more recognition with each passing year. These objectives of business can be put in two categories (i) Micro level -immediate environmental objectives (ii) Macro level - national objectives Under this category the business is expected help in the spread of literacy, education, training, medical care and public health, control of air and water pollution, development of backward classes and regions, and helping cultural, religious and charitable institutions engaged in the work of improving the lot of human beings. The main social objectives of business are as follows: -  (1) Supply of standard quality of goods:  one of the social responsibilities of business is to produce goods of standard quality. If the enterprise is producing inferior, substandard and adulterated goods, it will be doing disservice to the society. (2) Avoidance of anti-social practices:  It is not fair on the part of a business to indulge in anti-social practices such as hoarding, black marketing, smuggling, overcharging etc., to earn profit. A reasonable profit on a legitimate business is regarded a healthy sign and considered hi/al from Islamic point of view also. (3) Provision of more employment: Business provides employment to the people. It thus helps in increasing the standard of living of the members of the society.  (4) Cooperation with the government:  the business community should adopt a......

Words: 1147 - Pages: 5

Evaluate, Using Your Own Examples, How Firms Can Still Make a Profit and Be Competitive During a Recession. (40marks)

...Being competitive means offering something that other, similar companies do not offer. To stay competitive during a recession it is important to focus on the marketing mix. For example pricing is a crucial element that directly affects the number of sales especially at a time when people are being more careful with their money. An example of a company who uses pricing to their advantage would be Poundland as they use a consistent penetrative pricing strategy to entice sales. This is more effective during a recession as people will choose lower prices to save their limited budgets. The chain ‘99p Store’ uses a similar strategy but also uses Physiological pricing as a way to compete with Poundland. This is because 99p sounds allot less than £1 although there’s only 1p between them, however many stores believe due to this strategies commonality amongst pricing choices that it no longer has any significant effect on customer choices. A company who failed to adapt their price strategy and chose to stick to high prices even during the recession was HMV. This is one of the main reasons they became less competitive and lost their customer to other cheaper stores, such as Sainsburys. However HMV were also struggling due to the boom in e-commerce. This would be classed as location in the marketing mix. For example; when Apple made it so all music could easily be bought and downloaded online, the sales of CD’s came to a standstill. Similarly to this companies like Netflix and Sky have...

Words: 931 - Pages: 4

Why It Is Important for Firm to Be Ethical?

...1) First and foremost, being ethical is the right thing to do. It is important for firm to be ethical because it creates good working environment for all stakeholders and helps firm to succeed. Other reasons why business should run ethically and ration behind each reasons are as follows: • Customer loyalty: Loyal consumers not only purchase products again and again, they also provide company a great service by giving positive feedback regarding a product, telling friends, family and society. Thus, adding them to the number of loyal customers and boosting firm sales and profit. • Suppliers Trust: Paying suppliers on time, and following the terms and condition of agreement is an ethical way of running business and keeping good relation with suppliers. If there is a good relation with supplier then firm will benefit from getting quality raw materials at a given date. This will help firm to be right on schedule and maintain the quality of their product. • Attracting and motivating employee: In a modern world it is vital for firm to be ethical because employee prefers to work in firms with ethical business practice at a lower pay compared to a firm with questionable ethics at a higher pay. This reduces recruitment cost and enables firms to get most talented employee. Motivated employees are happy employees. Therefore, they work more efficiently, provide better service and create pleasant working environment. • Investor’s confidence: Unethical accounting practices have made...

Words: 334 - Pages: 2

Which of the Hr Objectives Facing Mr. Brush Are Really the Most Important to the Success of the Business?

...1. Which of the HR objectives facing Mr. Brush are really the most important to the success of the business? Prioritize them and justify your list. The success of the business would be best helped by the recruitment of new workers to meet the additional demands on the company, followed by training of the new recruits and management of healthcare cost. Any initiative undertaken must follow the objectives of the organization. It is critical that organizational objective and HR initiatives support each other. The business is growing and it is facing a tight labor market. In a tight job market employers face the growing problem of attracting and retaining the work force necessary for their businesses to grow and thrive. Once the HR department clearly understands their company's current (and future) employment needs, the next step is to decide on the appropriate recruiting strategies. Job recruiting has evolved beyond the newspaper job ad and paper resume. Today, companies and job seekers have an abundance of information at their fingertips. From social media and Internet job boards to recruitment firms, the broad scope of recruiting possibilities is endless. With so many options available to companies, it may be hard to pinpoint where to best focus company efforts and resources, but each option needs to be thoroughly researched and resources as needed should be applied. Once the perfect employee is hired the next step in ensuring retention is training. Organizations that......

Words: 1017 - Pages: 5

Evaluate Whether Profit Maximisation Is Always the Most Important Objective of Firms. (25 Marks)

...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. Firms are usually controlled by the managers, in order for managers to keep its position its must gain enough or maximise the firms’ profits, so it can satisfy the shareholders. However managers may want to take a different approach rather than maximising the firms’ profits. Managers may want to maximise managerial objectives such as maximising its sales rather than profits. However although they are taking a different approach, they still must gain enough profits to satisfy the firms’ shareholders in order to avoid losing their jobs. Managers may want to pursue the objective of making a more ethical and greener environment. In a firm, there are many shareholders who have different views on what the company should be doing, these shareholders form coalitions. The manager may try to resolve conflicts between different interest groups in different organisations. However, attempting to satisfy the aspiration of as many groups within the organisation as possible would mean compromise and the possible of setting minimum rather than maximum targets. Therefore manager may try the method of satisficing. Satisficing means achieving objectives that are acceptable to all the competing member groups of the coalition. This concept is only used when firms are in an imperfectly......

Words: 949 - Pages: 4

Maximisation of Profits

...to the following: The copyright notices in the Software and this entire statement, including the above license grant, this restriction and the following disclaimer, must be included in all copies of the Software, in whole or in part, and all derivative works of the Software, unless such copies or derivative works are solely in the form of machine-executable object code generated by a source language processor. THE SOFTWARE IS PROVIDED "AS IS", WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT. IN NO EVENT SHALL THE COPYRIGHT HOLDERS OR ANYONE DISTRIBUTING THE SOFTWARE BE LIABLE FOR ANY DAMAGES OR OTHER LIABILITY, WHETHER IN CONTRACT, TORT OR OTHERWISE, ARISING FROM, OUT OF OR IN CONNECTION WITH THE SOFTWARE OR THE USE OR OTHER DEALINGS IN THE SOFTWARE. The OpenSSL Project ( OpenSSL ) Copyright © 1998-2011 The OpenSSL Project. All rights reserved. Redistribution and use in source and binary forms, with or without modification, are permitted provided that the following conditions are met: 1. Redistributions of source code must retain the above copyright notice, this list of conditions and the following disclaimer. 2. Redistributions in binary form must reproduce the above copyright notice, this list of conditions and the following disclaimer in the documentation and/or other materials provided with the distribution. 3. All advertising materials......

Words: 7735 - Pages: 31

Using Objectives and Strategies

...Chapter One – Using Objectives and Strategies Key Terms Corporate Objectives – The long-term goals of an organization. Corporate Strategies – The medium to long-term plans to achieve the corporate objectives of a business. Corporate Tactics – The short-term actions taken in a response to opportunities or threats and with the ultimate aim of achieving corporate objectives. Functional Objectives – The targets of each functional area of a business based around the corporate objectives. SMART Targets – Establishing objectives that are specific, measurable, agreed, realistic and time bound. Exam Advice Everything you do in Unit 3 needs to think about the impact that it will have upon the corporate objectives and the other functional areas of the business. You must get used to thinking about the impact of decisions upon the entire business. Corporate Objectives These are the overall goals of an organization and will vary between businesses depending on their size and available resources. Objectives might include: • Growth • Diversification • Maximisation of profits • Survival Functional Objectives These are the goals held by individual functional areas of a business that are ultimately trying to fulfill the corporate objectives. The four functional areas that you need to consider in your exam are: • Marketing • Finance and Accounting • Human Resources • Operations Corporate Objectives, Functional Objectives and Functional Strategies are medium to......

Words: 3906 - Pages: 16

Evaluate the Factors That Can Result in Some Pressure Groups Being More Successful Than Others’ Discuss (25 Marks)

...‘Evaluate the factors that can result in some pressure groups being more successful than others’ Discuss (25 Marks) A pressure group is an organisation that may be causal or sectional whose purpose is to further the interests of a specific section of society or to promote a certain cause; there are many reasons why a pressure group would want to do this. There are various degrees of success with pressure groups, ranging from amending or passing new laws to gaining public support. One thing that can alter a pressure group's success is whether the group is an insider or outsider group, and its relationship with the government, otherwise known as the pressure groups status. An insider group is one that operates within the political system and which normally has support from MP's, they are normally consulted by the government on matters that may affect the group or its members. Insider groups are usually more professional in their organisation and don’t use methods such as direct action to gain publicity. The British Medical Association is an insider group, recently they were included in discussions over the proposed NHS reforms and as a result of those talks the reforms were altered. Insider groups will have regular contact with members of parliament and other decision makers like civil servants and so have more opportunities to influence them and their policies. Because of this, insider groups generally have more support but tend not to hold such radical ideas. The......

Words: 580 - Pages: 3

Price Elasticity of Demand (25 Marks)

...“Evaluate the view that the ability of firms to exploit their customers depends on the price elasticity of demand for their products" 25 marks Callum Barnett Price elasticity of demand is the proportionate change in demand for a good, following an initial proportionate change in the good’s own price. Most goods are either elastic or inelastic. Elastic demand means that consumers are really sensitive to price changes. If the price goes down just a little, they'll buy a lot more. If prices rise just a bit, they'll stop buying as much and wait for prices to return to normal. Inelastic demand is demand for a good or service that does not increase or decrease in response to changes in price. Demand for goods that are life necessities, such as water, or economic necessities, such as fuel, tends to be inelastic, since people cannot greatly change how much of these goods they consume, even if the price changes dramatically. So when demand is elastic firms can’t exploit consumers as much as they are very sensitive to price, so if there is a slight increase in price in the product then demand will fall more significantly than the price rise meaning the firms would lose more customers and profits due to the decrease in demand as this diagram shows: http://www.darwinsmoney.com/wp-content/uploads/2011/01/elasticity-of-demand-300x225.jpgSo as you can see, let’s say a price of a good has increased from 18 to 20 that is an increase of just over 11%. Before this increase they were......

Words: 671 - Pages: 3

Objectives of Firm

... ASSIGNMENT OBJECTIVES OF A FIRM SUBMITTED TO: SUBMITTED BY: M/S SHALINI MUKHARJEE NIKHIL SWAMI DAD ISBE-A IIPM (JAIPUR) Objectives of a Firm In about the eighteen-seventies, economists were rethinking the theory of consumer demand. They applied a version of "diminishing returns" and the Equimarginal Principle to determine how a consumer would divide up her spending among different consumer goods. That worked pretty well, and so some other economists, especially the American economist John Bates Clark, tried using the same approach in the theory of the firm. Following the Neoclassical approach, we will interpret "rational decisions to supply goods and services" to mean decisions that maximize -- something! What does a supplier maximize? The operations of the firm will, of course, depend on its objectives. One objective that all three kinds of firms share is profits, and it seems that profits are the primary objective in most cases. We will follow the neoclassical tradition by assuming that firms aim at maximizing their profits. There are two reasons for this assumption.......

Words: 3972 - Pages: 16

Most Important Day

...Rebecca Martin English 8:15 12/5/14 Getting It Together The most important day in my life so far would have to be my high school graduation. I was always fairly decent in school, hardly ever missing a day unless I came down with something contagious. However, my high school years looked like they would be the opposite. I started feeling really sluggish, and got terrible headaches all the time. After numerous tests and doctor visits, I found out I had a disease that made my body flush out all of the vitamins that I needed to be healthy, along with other issues. Struggling to wake up and get out of bed every day for school was just too difficult some days, so instead of going to school, I would stay home. My grades started slipping. Truancy letters were being sent to my house, warning me that my parents could be fined because I was not attending school regularly, which is common for schools to do now for truant students. One of the counselors at my school called me in one afternoon and told me that because my grades were dropping, I would not be able to attend my senior dances or compete on my color guard team anymore unless I made up some work and school time that I had missed in detention. Whether I wanted to or not, I had to start dragging myself to school and detention right after, which felt like torture. About two weeks into going back, I got called back into the counselor’s office, and it was even worse news for me. She closed the door, sat down. She looked like...

Words: 610 - Pages: 3

Econ3 June 2012 Mark Scheme

...ion 140) Unit 3 Bus U 3: siness Econ s nomic and the cs Distrib D bution of In n ncome F al Fina Mar S eme rk Sche e Mark schemes are prepared by the Principal Examiner and considered, together with the relevant questions, by a panel of subject teachers. This mark scheme includes any amendments made at the standardisation events which all examiners participate in and is the scheme which was used by them in this examination. The standardisation process ensures that the mark scheme covers the students’ responses to questions and that every examiner understands and applies it in the same correct way. As preparation for standardisation each examiner analyses a number of students’ scripts: alternative answers not already covered by the mark scheme are discussed and legislated for. If, after the standardisation process, examiners encounter unusual answers which have not been raised they are required to refer these to the Principal Examiner. It must be stressed that a mark scheme is a working document, in many cases further developed and expanded on the basis of students’ reactions to a particular paper. Assumptions about future mark schemes on the basis of one year’s document should be avoided; whilst the guiding principles of assessment remain constant, details will change, depending on the content of a particular examination paper. Further copies of this Mark Scheme are available from: aqa.org.uk Copyright © 2012 AQA and its licensors. All rights reserved. Copyright AQA......

Words: 6251 - Pages: 26

To What Extent Are the Biggest Pressure Groups the Most Successful 25 Marks

...to what extent are the biggest pressure groups the most successful Success in pressure groups is defined by how they affect government policy, their agenda-setting power and how well they can change people’s ideologies. There are many other factors that contribute to the success of a pressure group i.e.: the finances that have been gained, the widespread support of the pressure group, the cause of the group itself and the organisation of the group. But it is important that all of the aforementioned factors work collaboratively to produce a successful pressure group. the biggest pressure groups the most successful to some extent as I believe that size alone does not necessarily mean that the pressure group with the most members will ultimately be the most successful Some argue that the more members a pressure group has the more successful it is, because it can then be functionally representative of the public. The TUC has 7 million members supporting it's “cause” making very successful as the government can see that this group is representing a large public opinion. If a group such as the TUC were to support a political party for example, the party would notice a considerable difference in support with the TUC's backing than without. Pressure groups that have more members, leads to more donations, proving that size is necessary in order for pressure groups to be the most successful. Chequebook groups tend to get most of their finance from their members, for example......

Words: 1061 - Pages: 5

Strategic Planning of Marks and Spencer Group

...Strategic Planning of Marks and Spencer Group Executive Summary: In this report a step by step analysis of Marks and Spencer group strategic planning is presented. Mark and Spencer is one of the biggest retail company in UK and leading company producing women apparels. The report is begun with analyzing various external environment of the company that includes STEEP analysis and it helps to understand the external environment of the company. After that the report covers the business plan of the company with its strategic planning section, and how the company is able to implement its strategic planning. Whereas the focus of strategic planning is on the whole organization and the focus of the business plan is on a particular product or service. Contents Executive Summary: 2 Introduction and Company background: 4 Task 1 5 1.1 The importance of external factors affecting Marks and Spencer Group: 5 1.2 Analyze the needs and expectations of stakeholders of Marks and Spencer Group: 7 1.3 Analyze the major changes taking place in the external environment that will affect strategy of M&S: 8 Task 2 8 2.1 Use appropriate tools to analyze the effects of current business plans 8 2.2 Review the position of M&S in its current market 9 2.3 Evaluate the competitive strengths and weaknesses of M&S 10 Task 3 10 3.1 Use modeling tools to develop strategic options for M&S 10 3.2 Develop a comparative understanding of activity from organization...

Words: 6011 - Pages: 25

Why Might a Business Firm Pursue Other Objectives Besides the Objective of Maximum Profits? What Objectives Other Than Profit Maximisation Might a Firm Pursue? Is This Possible in a Competitive World?

...Why might a business firm pursue other objectives besides the objective of maximum profits? What objectives other than profit maximisation might a firm pursue? Is this possible in a competitive world? The traditional theory of business behaviour tends to make a general assumption that businesses possess the information, market power and motivation to set a price and output that maximises profits. Profits being defined as the difference between the total revenue received by a firm and the total costs that it incurs in production. This assumption is now often criticised by economists who have a better understanding of business behaviour and phycology in modern-day corporations, in particular due to a divorce in ownership and control that is common to most large scale corporations. A business might depart from pure profit maximisation objectives for a number of reasons. Some relate to the lack of detailed and precise information, while others focus on the alternative objectives of firm. One of the reasons that firms might abandon a profit maximising strategy is that it is very difficult for them to identify their profit maximising output, as they cannot accurately marginal revenue and marginal cost. Frequently the day to day pricing decisions of firms are taken on the basis of projected demand conditions rather than any systematic calculation of a demand curve. As most of today’s firms operate in a range of separate markets, the sheer volume of information that they......

Words: 1076 - Pages: 5

ซีรี่ย์ ปริศนาฆ่าออนไลน์ | Brothers' Nest | iBooks Author Handbuch