Different is defined as “the tendency of managers to

Different economic theories
have claimed that firms will do as much as possible to maximize their profit
according to Duflo & Karlan, 2012. In 2013, Nekipeloy stated that the
“maximisation of economics profit is driving motive of a firm’s activity
according to the neoclassical theory”, which has been led to profit
maximisation becoming one of the objectives of a firm. Many firms have seen
profit maximization, which is described by Black, Hashimzade and Myles (2017)
as an “act of making as much profit as possible for a business”, as a way of
improving and growing their firm. Various firms believe
that a maximisation of profits would “lead to an economically efficient or
welfare maximising outcome” (Hussain, 2012), and give them an “incentive and a
reward” (Northrop 2013), these could resulting to an increase in the wealth of
managers and other stakeholders of the business, or the business improving the
quality of their products, through ways such as research and development, which
can ultimately increase their customer loyalty.

Although firms want to
maximise profit, the owner and the managers may not always have the same
ambition to increase profit, this is known as the principal-agent problem
which, according to The Economist (2012), is defined as “the tendency of
managers to run companies to suit their own interests rather than the interests
of their owners or customers”, due to this, profit maximisation may no longer
be the main objective of a firm (Black, Hashimzade and Myles, 2017). Though
owners may want to maximise profit, managers may want to focus more on improving
the motivation of the employees. In 2008, Delmar and Wiklund stated that a “managers
‘ growth motivation has a unique influence on firms outcome measured as growth
in sales”, which would be beneficial for the business, in the short and long
term. However, the principal agent problem could affect a firm in many ways,
one being that it can show a lack of communication between the managers and the
owners, and resulting to a lack of information being passed across the firm.
This could then reflect negatively on the business and eventually result in a
reduction in motivation and also profit. However, this problem can be
solved with the help of corporate governance and….

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

According to Saha (2014) firm
objectives “need not be limited to profit maximisation only”, so they should
focus on other objectives as well such as the objective of a monopolistic
market structure. A monopoly, which Doyle (2016) describes as “a
non-competitive market situation in which there is only on seller” not only
want to make supernormal profit in both short and long run, but also want to
increase their market share so that they can gain monopoly power and act as
price makers and influence the price of the products in their particular
market. A downside of increasing market share is….

Another objective of a firm
is to “maximise revenue” (De Donder, Roemer, 2009) unlike profit…

There is also some managerial
objectives, such as “utility maximization” (Fort, 2015) which could result in
them increasing thing like their prestige and status. However, managers
shouldn’t always assume that maximising their preference satisfaction will also
maximise the chances of their firms’ chances of survival, reported by Cohen,
2013, as it could result in…..

Firms have many
responsibilities other that maximising their profit, such as performing in an
ethical way, and having a corporate social responsibility, which is seen “as a
crucial element to the survival and development of a business” by Martí-Borbolla & Ortiz-Arango (2016). In 2014 the ACCAPR stated that
behaving ethically, and having corporate social responsibility can benefit
firms in many ways,  one of them being
that it makes employees want to stay with the business, resulting to a
reduction in labour turnover and therefore an increase in productivity. Another
advantage from the ACCAPR (2014) suggested is that when a firm is ethical, it
can attract investors and keep their share prices high, thereby protecting the
business from any takeovers.

Firms shouldn’t always be set
on maximising their products, as it could resolve in many problems for the
firm. One of them being that maximising profit may not always help with the
growth of a business, as it could lead to a business facing a loss due to the
fact that they may have to increase the price of the products. If a firms
products are price elastic ” a good that is affected by the change in price”,
then it could lead to a reduction in the number of new customers and customer
loyalty that a firm will have, especially in the future, because customers will
end up going to business’ that sell an alternative products at a cheaper price.

 

Figure 1 The Importance of Price Elasticity of Demand (Doyle, 2016)

 

 

 

 

Figure 1 shows that if prices increase from P2 to P0, then
the Quantity demanded would decrease from Q2 to Q0, which suggests that even a
small change in the price of an elastic product, would dramatically decrease
the level of the demand. This concept links to another responsibility of a
firm, apart from making profit, firms are responsible of meeting the needs of
both their internal and external stakeholders. Stakeholders are defined as “a
person who has a legitimate or vested interest in the activities of an
organisation” (Heery & Noon 2017). In this case, the customers are the
firms’ external stakeholders, so the firm needs to make sure that their
products are what the customers would want.