• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Many Economists and managerial Scientists in our days question that the sole aim of a firm is the maximisation of profits.

Extracts from this document...

Introduction

"The increased rate of merger activity both nationally and internationally suggests that many enterprises will adopt a multi-divisional internal structure. The implication of this divisionalisation must be that modern business firms are more likely to adopt goal pursuits and least cost behaviour associated with the neo-classical profit maximisation hypothesis." Many would make the basic assumption that firms are in business for a simple reason: To make money. Traditional economic theory suggests that firms make their decisions on supply and output on the basis of profit maximisation. However many Economists and managerial Scientists in our days question that the sole aim of a firm is the maximisation of profits. These economists suggest that there are a number of other objectives that are important to a business. Personal motives may be important, especially where the manager is also the owner of the firm. In this case emphasis may be placed on good employee relations and the welfare of the workers. Divorce of ownership from control in modern day businesses has challenged the traditional theory of economists that profit maximisation is the main objective. Many businesses, especially those involved in merger activity are beginning to move away from the traditional U (unitary) ...read more.

Middle

There are many alternative to the neo-classical profit maximisation theory that challenges their ideas. Sales Revenue Maximisation is one of these alternatives. This objective was initially developed by the work of Baumol (1959). Baumol's research focused on the behaviour of manager-controlled businesses - where the day-to-day decisions taken by managers are divorced from the shareholders (the owners of the business). Baumol argued that annual salaries and other perks might be more closely correlated with total sales revenue rather than profits. It could be argued that if your sales are maximised then your revenue is likely to rise at a faster rate than your costs (as you can exploit economies of scale more) and the end result of this is likely to be an increase in profits. Another alternative view was put forward by Williamson (1963), who built a model based on the concept of managerial satisfaction (utility). This model is similar to Baumol's sales revenue maximisation in the sense that managers try to maximise their own utility subject to some profit constraint. Managerial utility includes high salaries, perks, status, and power and job security. These factors provide the basis for managers to spend money on staff. ...read more.

Conclusion

As we have seen most of the short-term objectives such as sales revenue maximisation, are very important short-term objectives but tend to inevitably lead to higher profits in the long term. With multi divisional organisations it is easier for the executives to aim for profit maximisation as they entrust the day to day running to the separate departments who are responsible for the main decisions whilst being advised by the top level management. To conclude I would accept that although business have shorter term objectives and are working within constraints which may threaten maximisation theories, it is clear that very few business would continue to operate with no profits. Firms can enjoy the incentive of higher profits if they can attract sufficient consumers to buy their products, and so I would accept that as short-term objectives those such as sales maximisation cannot be ignored. However the traditional neo-classical approach of profit maximisation seems to be the underpinning of almost every organisation regardless of size or status. Having said that I feel that it would be unwise of businesses to completely disregard the behavioural model as its foundations are built on achieving realistic results in a firm, as so it should be seen as a useful complement to the maximisation theories rather than as a substitute for them. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Structures, Objectives & External Influences section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Structures, Objectives & External Influences essays

  1. Marked by a teacher

    ASDA's Ownership

    4 star(s)

    Task 6: Summary and relevant comparisons A). In the tasks I have completed in this coursework, I have discussed all I know about the businesses, how they were formed, who the owners are, their legal status etc and have described the trends in the tertiary sector and how the trends affect the businesses performance.

  2. The Business Environment Coursework. Describe the type of business, purpose and ownership of ...

    as there are limits to how many stores they can have in any one area. Tesco need to make sure they have a good understanding of the laws in the countries they operate in. They need to make sure that they abide by the laws, as there may be consequences.

  1. Introduction to J Sainsbury plc

    "All of Sainsbury's colleagues have opportunities to develop their abilities". (Source: www.j-sainsbury.co.uk) Sainsbury's organisation structure allows staff to exactly know who does what job and also allows them to view their own promotional prospects, as there are many levels to move up.

  2. Differentiate between strategic planning and operational planning.

    These activities and actions will then be broken down from Miss Mary, top management to managers, from managers to supervisors and down the line. Each and every employee including Miss Mary to the production workers will have a role to play and a direction to follow, which in return, will comes back to the organization goals and objectives.

  1. "Discuss the assumption that the firm's main motivation is to maximise profits?"

    Therefore, the objectives of managements may differ from the shareholders and conflicts may arise. "For example Baumal (1959) suggest that the manager-controlled firm is likely to have sales revenue maximization, as its main goal than profit maximization favoured by shareholders" (Applied Economics 7th ed.

  2. Business report on J Sainsbury's.

    as before when customers found out that every pound they spend 10p is going towards the red nose day. True partnerships offer benefits to both parties and they are confident that their sponsorships provide a blend of community and corporate values and branding opportunities.

  1. Investigating Business. Tesco PLC. I will be describing the aims and objectives of ...

    There are six work levels within Tesco?s organisation structure. This gives a clear structure for managing and controlling the organisation. Each level requires particular skills and behaviours from staff. Work level 1 is about frontline jobs working directly with customers. Various in-store tasks, such as filling shelves with stock.

  2. Applied Business. Investigating a business Preston Manor High School

    For example, if a Head of business department is on the leave, then the school may struggle to operate the business department, the staffs may not know what topics they have to teach in their lessons etc. This will cause the lessons to slow down and not being taught to full effect.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work