Why Might a Business Firm Pursue Other Objectives Besides the Objective of Maximum Profits? What Objectives Other Than Profit Maximisation Might a Firm Pursue? Is This Possible in a Competitive World?

1080 Words May 4th, 2012 5 Pages
Why might a business firm pursue other objectives besides the objective of maximum profits? What objectives other than profit maximisation might a firm pursue? Is this possible in a competitive world?
The traditional theory of business behaviour tends to make a general assumption that businesses possess the information, market power and motivation to set a price and output that maximises profits. Profits being defined as the difference between the total revenue received by a firm and the total costs that it incurs in production.
This assumption is now often criticised by economists who have a better understanding of business behaviour and phycology in modern-day corporations, in particular due to a divorce in ownership and control that
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Many companies have a divorce of ownership and control, meaning the owners and those who control the firm (managers) are different groups with different objectives. The owners will more than likely wish to pursue a profit maximising objective; however the managers will more than likely have their own agenda. Managers may wish to have an easy life or maximise their prestige, the pursuit of these goals will lead to increasing costs and therefore profits will fall. In this case the shareholders are the principals and the managers are the agents who run things for them. If these agents are fully in synchronisation with the objectives of the owners there is no problem, and the managers will take exactly the decisions that the owners would like. Usually problems arise when there is conflict between the aims of the owners and those of the managers. One simple reason why this problem may arise is that the managers like a quiet life and therefore do not push aggressively for the profit maximisation position, but do just enough to keep the shareholders off their case. This was referred to as ‘satisficing’ behaviour by Herbert Simon, where managers aim to produce satisfactory profits rather than maximum profits. Another possibility is that managers become negligent because they not full accountable. One manifestation of this may be organisation slack in the organisation,
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