Maximizing Profits as the Main Goal Essay -- Economics Business Manage

Maximizing Profits as the Main GoalThe traditionalistic possibleness (neoclassical) assumes that self-coloureds primaryobjective is to maximise profits. That is if the star sign is ownercontrolled. This assumption is based on that rigids makes the outputand price decisions. Also, that firm takes all necessary actions toearn the greatest profit possible. The managerial theory assumes firmsdo not necessarily act in order to maximize profits. The basic tenetbehind this is the separation of ownership from management, complexityof the composition and the firms manager maximizes his own utilityand growth quite a than profits. The reason for this is that managers may be judged by the level of sales revenue. I will be providingsupporting arguments for and against this assumption that the firms of import motivation is to maximise profits and draw a conclusion byanalysing the firms behaviour as well as further discussing thetheories of firms.Profit maximise assumption is based on tw o set forth, firstly thatowner is in control of day-to-day management of the firm and secondlythat the main entrust of owners is to make a higher profit then theamount they invested in the firm. Since this assumption is based ontwo assumptions, therefore if these two premises dont hold is itunderstandable to believe that firms goals is not to maximize profits.Well, this will depend on the motivation of individual firms.If a firms ownership and control are in the hands of a single personor small groups of people, then its rational to assume that thefirms owners goal is to maximize profits. But around of todays firmsare owned by shareholders and other gigantic cooperation, but day-to-daycontrol of the firm is under management. Therefore, the objectives ofmanagements may disaccord from the shareholders and conflicts may arise.For example Baumal (1959) suggest that the manager-controlled firm islikely to have sales revenue maximization, as its main goal thanprofit maximization fav oured by shareholders (Applied frugals 7thed. p54). Also, studies of 177 firms between 1985 and 1990 by Conyonand Gregg (1994) found that the pay of swipe decision maker of large firms inUK was mostly related to sales growth. separate studies have found that profit was the most importantdeterminant of executive income. For example A survey by ManagementToday in 1990 asse... ..., argued that regardless of how actual firms may behave and constraints on rationality they may be subject to, the survivingfirms are those who attained high profits. overdue to the strength ofthese arguments, we tend to accept profits maximization theories arejustifiable.BibliographyAlchian, A (1950), Uncertaintity. Evolution, and Economic Theory,Journal Of Political Economy. 58(3), 211-221.Buzzel, R, & Gale, B. (1987). The PIMPS Priciples, Strategic PlanningInsitute.Conyon, M & Gregg, P. (1994). Pay at the backsheesh a study of thesensitivity of top director remuneration to company specific shocks,Nati onal Institute Economic Review, August.Friedman, Milton (1953), Essay in Positive economic science, Chicago ChicagoUniversity Press.Griffith, Alan & Wall, Stuart (1997). Applied economics AnIntroductory Course. 7th Ed.Lipsey & Chrystal (1999). Priciples of Economics. 9th Ed.Marris, R. (1964) The Economic Theory of Managerial Italism,Macmillan.Sloman, J (2003).Economics. Prentice Hall. 5th edWilliam, K. Objectives. Can be found onhttp//william-king.www.drexel.edu/top/prin/txt/MPch/firm2.html.Accessed 4th of February 2005.