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The aims of firms( THE PRINCIPLE OF PROFIT MAX AS A GOAL)Most firms want to make a profit, however, this is not the primary aim of all firms. The aim of firms are as follows:

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The private firm as producer and employer The aims of firms( THE PRINCIPLE OF PROFIT MAX AS A GOAL) Most firms want to make a profit, however, this is not the primary aim of all firms. The aim of firms are as follows: 1.Profit maximization Selling goods and services earns revenue for a firm. Profit is what is left from revenue after all costs have been deducted. A firm that is unable to cover its costs with enough sales revenue will make a loss and could be forced to close down if losses continue. A firm may make a loss if it fails to make a product consumers want, at the price or quality they want, or provides a poor customer service. A firm may also make a loss if it is unable to produce products at the same or a cheaper cost than rival firms. It is therefore important for firms to be efficient and continually try to reduce their costs of production. 2. Providing a public service ( Nationalised industries) Public sector and government run 3. Providing a charity Rely on donations and endowments. 4. Non-profit making organizations: building societies ( better interest rates) 5. Managerial theories: Aims are set by managers, big offices, better working hours. 6.Behavioural theories: theories about behaviour for the different groups working in firms, people who run the firm. 7.Co-operative theories: 1) workers 2) consumers Long and Short Run Profit Short Run profit maximization: All firms wanting to make a profit need to cover their total costs. Some firms want to make as much profit as they can now in the short run. Other firms may be prepared to not make a profit in the short run, so long as they are still covering their average costs, in this case they are not making any profit at all. ...read more.


They can divide up the production process into specialized tasks so that production becomes faster as each worker becomes an expert in their particular job ( division of labour). In small firms there are simply not enough workers or specialized machinery to make this profitable. b) Large firms can also afford to research and develop new faster methods of production and new products. The cost may be high but it is spread over a large output. c) The larger the firm, the more transport it needs to carry materials and products to and fro. As a firm grows in size, it can afford to use large types of transport like juggernauts, or in the case of oil companies, supertankers. 4. RISK-BEARING ECONOMIES Running a firm is a risky business and clearly the bigger the firm the more things can go wrong. Therefore larger firms try to overcome the risk in a number of ways: a) a small firm is likely to need only small amounts of raw materials or components to produce goods or services and so it would probably only obtain these from one supplier. A large firm will, however, need to buy materials in bulk and if they cannot obtain these for some reason, for example, a strike at their suppliers or some transport problems, then their whole operation will grind to a halt. Large firms will try to resolve the risk of this happening by using many different suppliers, buying some of the materials they need from each/ b) a small firm is only likely to produce the one particular good or service and they could find themselves in trouble if consumers suddenly decided not to buy that product. ...read more.


The first is by INTERNAL GROWTH where the firm increases its own size by producing more under its existing structure of management and control. The second and more common method today, is by AMALGAMATION ( OR INTEGRATION). This occurs where one or more firms join together to form a larger enterprise. Firms can amalgamate or integrate in one of these two ways: 1. TAKE-OVER It occurs when one company buys all, or at least 50% of the shares in the ownership of another company. In this way, the firm being taken over by another company often loses its identity and becomes part of another company. 2. MERGER It occurs when two or more firms agree to join to form a new enterprise. This is usually done by shareholders of the two or more companies exchanging their shares for new shares of the new company. There are THREE main forms of integration between firms; 1) HORIZONTAL INTEGRATION This occurs when firms engaged in the production of the same type of good or service combine. Most amalgamations are of this type e.g. British Petroleum with Amoco in the oil and gas industry 2) VERTICAL INTEGRATION This occurs when firms engaged in different stages of production combine. This would be the case if an oil refinery combined with a chain of petrol stations. This is called forward integration. Firms can also undertake a backward integration e.g. a bread manufacturer combining with a wheat producers' association. In this way the firm can ensure a supply of materials. 3) LATERAL INTEGRATION This happens when firms in the same stage of production, for eg primary or secondary production, but producing different products combine. This is often a conglomerate merger to form conglomerates which are firms which produce a wide range of products e.g. unilever is a firm famous for its detergents but with interests in food, chemicals, paper, plastics, animal feeds etc. ...read more.

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