Profit Maximisation
Is Profit Maximisation always the major objective of a firm?
The production of goods and services in our economy today takes place within organisations, whether in the centrally planned economy or free market economy. Any firm within these societies all have the same tendencies to acquire a successful business. Attaining this succession through mission statements, goals and objectives is simultaneous through all businesses. Changes in these objectives can have forcible effects on the decisions that firms take day-to-day regarding pricing, output levels, the market and capital investment. Depending on the size of the corporation, objectives will evolve to meet changing economic conditions. 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. The theory of a firm tends to make this assumption 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 organisations 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. Applying the theory of supply and demand helps organisations to reach decisions. Using a demand curve defines the price, total revenue and marginal revenue associated with each level of output, where price changes act as the mechanism whereby supply and demand are balanced. In 2000, Clark dictated that, "a supplier should stop when the revenue made on the last item produced is no more than it cost to provide." (Pg 52)
The production of goods and services in our economy today takes place within organisations, whether in the centrally planned economy or free market economy. Any firm within these societies all have the same tendencies to acquire a successful business. Attaining this succession through mission statements, goals and objectives is simultaneous through all businesses. Changes in these objectives can have forcible effects on the decisions that firms take day-to-day regarding pricing, output levels, the market and capital investment. Depending on the size of the corporation, objectives will evolve to meet changing economic conditions. 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. The theory of a firm tends to make this assumption 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 organisations 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. Applying the theory of supply and demand helps organisations to reach decisions. Using a demand curve defines the price, total revenue and marginal revenue associated with each level of output, where price changes act as the mechanism whereby supply and demand are balanced. In 2000, Clark dictated that, "a supplier should stop when the revenue made on the last item produced is no more than it cost to provide." (Pg 52)
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