Objectives of Firms Essay

Standard theory assumes that businesses lay down sufficient information, food market power and (importantly) motivation to set prices for their products that maximise turn a profits This assumption is now heavily criticised by economists who take in studied the organisation and objectives of modern-day corporations.Not solitary(prenominal) do most businesses frequently move onward from clear profit- appearking behaviour, many are organised and operated in a way where profit is not the only objective. Key Point There will always be a range of business objectives 1. lettuce maximisation (where MR=MC)2. Revenue maximisation (sales gross) where MR=zero3. Increasing and protecting market share4. Surviving an frugal downturn / recession5. Pursuing ethical business objectives (corporate social responsibility) 6. Providing a public service see later sections on nationalised (state-owned) industries Why top executive a business depart from profit maximisation? near explanations re late to the lack of accurate information required to set profit maximising prices. Others concentrate on the alternative objectives of businesses. Imperfect informationIt might be hard for a business to pinpoint their profit maximising output, as they give the bouncenot accurately calculate marginal revenue & cost. Day-to-day pricing decisions are interpreted on the basis of estimated demand or rules of thumb. A business might look to carry a profit margin on top of average cost cost-plus pricing. Multi-product businesses more or less businesses are multi-product secures operating in a range of markets across countries and continents the volume of information that they have to underwrite can be vast. And they must keep track of the ever-changing preferences of consumers. The idea that there is a neat, atomic number 53 profit maximising price is redundant. Behavioural Theories of the FirmBehavioural economists believe that large-scale businesses are entangled organizations ma de up of various stakeholders i.e. groups who have a vested interest in the activity of a business. Examples overwhelm Managers employed by a business and other employeesShareholders people who have an equity stake in a business CustomersThe disposal and its agencies including local government Each group is likely to have different objectives or goals at points in time. The dominant group at any moment can give greater emphasis to their own objectives for exemplification price and output decisions may be interpreted at a local level by managers with shareholders taking only a distant and awry informed view of the companys performance and strategy.If firms are likely to move away from pure profit maximising behaviour, what are the alternatives? 1. Satisficing behaviour is a term first coined by economist Hugo Simon when approach with a decision where the cost of identifying and pursuing the optimal choice is high. For business owners this might mean pitiable away from pure profit maximisation and choosing instead to aim for minimum acceptable levels of achievement in terms of revenue and profit. 2. Sales Revenue MaximisationThe objective of maximising sales revenue sort of than profits was developed by William Baumol whose work localizeed on the behaviour of manager-controlled businesses. Baumol argued that annual salaries and perks are link up to total sales revenue rather than profits. Companies geared towards maximising revenue are likely to suck in extensive use of price discrimination to extract extra revenue and profit from consumers.A firm might also aim to maximise sales revenue rather than profits because it wishes to deter the debut of new firms. If a firm decides to aim to maximise sales revenue rather than profits, one of the consequences might be a reduction in the price of the firms shares 3. Managerial Satisfaction frameworkAn alternative view was put forward by Oliver Williamson (1981), who developed the concept of managerial sa tisfaction (or managerial utility). This can be enhanced by raising sales revenue.Assuming that the firms cost remain the same, a firm will choose a lower price and supply a higher output when sales revenue maximisation is the main objective. The profit maximising price is P1 at output Q1, the revenue maximising price is P2 at output Q2 Consumer surplus is higher with sales revenue maximisation because output is higher and price is lower. Producer surplus is greater when profits are maximised. hearty EntrepreneursMichael Porter divided up Value and the Limitations of CSRNarrow views about how to create profit has created disconnect between businesses and union and needs to change according to Harvard Business School Professor Michael Porter. A growing number of companies cognise for their hard-nosed approach to businesssuch as GE, Google, IBM, Intel, Johnson & Johnson, Nestl, Unilever, and Wal-Marthave already embarked on efforts to create dual-lane value by looking again at the intersection between society and corporate performance.Shared value is creating economic value by creating social value In recent times, creating value has tended to focus on short-termist thinking Businesses have been long on driving huge sales and output volumes, downsize and de-layering ineffective management and generally responding to pressure from financial markets to deliver immediate results through cost-cutting, dynamic pricing and increasingly tough marketing that can often persuade people to buy things that are not untroubled for them.This involves a recalibration and a rethinking about what a product really is and what needs a business is meeting, for utilisation in the food industry, products that are nutritious and healthy rather than focus on volume, lower unit of measurement costs and higher profits. He notes to increasing prominence of social entrepreneurs with revenue generating business models. Consumers looking at the world differently and expressing their p references in strong ways this is already having a direct effect on supermarket behaviour.A social enterprise is a business that has social objectives whose profits are reinvested for that conclude in the business or the confederation, rather than being driven by the need to seek profit to reciprocate investors. Social entrepreneurs are looking to achieve social and environmental aimsNot for Profit BusinessesThese are charities, community organisations that are run on commercial lines e.g. Network Rail Network Rail Their stated purpose is to deliver a safe, reliable and efficient railway line for Britain They employ over 35,000 people with annual stave costs in excess of 1.6bn It is a company limited by guarantee whose debts are secured by the government Network Rail operates as a commercial business and regulated by the home of Rail Regulation Network Rail is a not-for-dividend company profits are invested in the railway network.Train operating companies (TOCs) pay Network R ail for use of the rail infrastructure They are given targets for punctuality and safetyIn 2011 Network Rail made profits of 750 million. It receives an annual subsidy from the UK government in excess of 5 billion. Businesses required to main a loss-making serviceA good example here is the Royal Mail which is required to maintain a universal national postal lecture service throughout the UK for a uniform price. Household carry makes a loss, cross-subsidised by business mail although this market is shrinking for the Royal Mail because of the introduction of fresh competition from 2006. The Post Office Ltd is a subsidiary of the Royal Mail Group plc it runs substantial losses on the network or untaught post offices and has been under great pressure to close hundreds of offices to stem losses.