Objectives Of A Firm

OBJECTIVES OF A FIRM

By: ANKIT BHARDWAJ Roll No.: 91004

FIRM • The Firm is a unit engaged in production of goods and services, and for which it organizes resources. • • Its aim is to meet demand of customers and to earn profit by sale.

Objectives of Firm • The main aim is to maximize the profit. • • But in the joint stock companies the alternative objectives are also there: 1.Profit maximization 2.Growth Maximization 3.Maximizing of satisfaction 4.Sales maximization

Meaning of Profit • Profit means the earnings by a company from its operations. • There are mainly two types of profit: 1.Economic Profit: It is also called Pure Profit  Economic Profit = Total Revenue – Total Cost  (where Total Cost = Explicit Cost + Normal Profit)

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So

EP = TR – (EC + NP)

Conditions for Profit Maximization As Profit = Total Revenue – Total Cost  P = TR – TC The two conditions are: 1.Marginal Revenue (MR) = Marginal Cost(MC) 2.Slope of marginal revenue curve should be less than the slope of marginal cost curve or, marginal cost curve must cut 

Arguments in favour 1.Strongest Motive

2. 3.Essential for Survival of the Firm

4. 5.Accurate Prediction

6. 7.Empirical

8. 9.Efficiency of the Firm

Arguments Against 1.Uncertainty

2. 3.Goal of Joint Stock Company may be different

4. 5.Unrealistic Assumption

6. 7.Impractical

8. 9.Accent on Liquidity of the firm

Sales Maximization 

In order to maximize total revenue by sale of goods, a firm produces that much quantity of the goods where marginal revenue becomes zero.

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Hence for the Sales Maximization MR should be zero i.e. MR = 0

Arguments in favour 1.More Realistic

2. 3.More Practical

4. 5.More Availability of Loans

6. 7.Strong Position in Market

8. 9.More Advantageous to the Managars

Arguments Against 1. 2.Profit Constraint 3. 4.Unrealistic Assumptions 5. 6.Limited Scope

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THANKS.