What other objectives might firms have beside profit maximization? (20 marks)
An alternative objective to profit maximisation is wealth maximisation. Shareholders invest money into firms in the belief that their wealth will be maximised to its potential for the amount of capital they invest and the risk involved. The wealth maximised is by the increased value in ordinary shares. Shareholder wealth maximisation can be achieved through growth maximisation, this is theory introduced by R. Marris 1964. Growth maximisation is the growth a firms demand and capital balance (fixed assets, stocks and current assets). It can be attained through re investing profits into buying capital goods and ...view middle of the document...
Reducing carbon imprint on the environment. For example Volkswagen has developed a new car (Blue motion polo). http://telegraph.co.uk/motoring/main.jhtml?xml=/motoring/2007/10/12/nosplit/mrshow12.xml . This gives the company the image of caring about the planet and being considerate people. Shareholders, workers, and customers are not the only important stakeholders. Local people around a firm can have strong influence over them.
Are there differences between the objectives of large and small companies?
There are certainly differences between the objectives of small and large firms First and foremost the biggest difference between the objectives of the small and large company is that. Objectives are highly structured and based on sound theoretical foundations which are then put through a series of appraisals before being implemented. Objectives from the small firm tend to be concocted by the owner and there is no real structure or framework in which objectives are being approved. Smaller firms will be trying to attain primary objectives where as bigger firms will be well past that as they will be an established firm they will focus more on further growth.
How would pricing policy reveal company objectives
Pricing strategies, are used for various objectives, e.g. survival, increased market share, to enhancing brand image. From scrutinizing a pricing strategy you can come to a conclusion on what objective the firm is trying to achieve. For instance a firm opts to keep prices low they could be trying in to deter new entrants into an industry. This pricing strategy would be desirable by a firm in a contestable market whose primary objective is to sustain or increase market share. Because the potential entrant does not have perfect information about the firmâ€™s costs, the prices of the firm will be a signal to the potential entrants that profits after entry will be relatively low. Any new entrants into the firm will increase supply and subsequently reduce price, which is bad for the incumbent because a reduction in prices equates to less revenue. The graph below illustrates this.
Explain profit satisficing.
Satisficing is a behavioural theory developed by herb Simon in 1959. The theory suggests that since managers find difficulty in determining maximisation levels, they rather opt to decide on a satisfactory level of profit in which the firm will find acceptable. http://cepa.newschool.edu/het/profiles/simon.htm
Explain what is the principle of profit maximization.
There are two principals in which the profit maximisation assumption is based on, the first being that the owners of a firm are the same people who deal with daily duties. The second principal is that the main desire for them is to gain higher profits. Some economists may disagree that they are in fact true.
Profit is maximised is where Marginal revenue is equal to Marginal cost....