The primary and most essential objective of any business is to maximize its profits. This is done by calculating the total revenue minus total cost. In economics, profits refer to returns above opportunity cost and is sometimes referred to as pure profit. The maximization of benefits occurs when the marginal cost is equal to the marginal income, which can be better understood with the help of a diagram.
Other objectives may be more important to the company than maximizing profits, such as maximizing sales, surviving in the market, and maximizing revenues. Owners or shareholders may have the objective of maximizing profits to obtain better returns and increase the value of their shares. In conventional theory, maximizing profits is the main objective of companies. However, many companies may have other objectives, such as those mentioned above.
Benefit maximization occurs when marginal cost equals marginal revenues. As early as 1932, Berle and Means suggested that managers had different objectives than shareholders. They are not interested in maximizing benefits and manage companies in their own interest and not in the interest of shareholders. Robin Marris, in his book The Economic Theory of 'Managerial Capitalism' (1996), has developed a dynamic and balanced theory that maximizes company growth.
Kafolgis's emphasis on maximizing production versus maximizing sales by Baumol is not a satisfactory explanation of a company's objective. If the company simply aims to maximize production without maximizing sales, it may not be in a position to survive for long. Both objectives are complementary rather than competitive. The L1 and L2 curves are the entrepreneur's indifference curves, which represent their levels of satisfaction, producing combinations of money, income (benefits) and leisure.
This level of production is lower than the PQ of production for maximizing profit. Business profits, Q1M1, at the production level in the first quarter are also lower than the maximum QM earnings at the production level of the QM in the production level of the PQ. In the first quarter, the level of benefits, the entrepreneur maximizes his satisfaction because he enjoys the leisure of the first quarter, which is the first quarter more than he would have enjoyed with the maximization of profits (OQ). Obtaining benefits is considered a main objective of each business unit and essential to its survival and growth. The goal of maximizing sales is achieved when the average cost is equal to the average income. The desire to increase their security leads to the struggle to position themselves and to set a price that is not so low as to provoke reprisals from rivals, nor so high as to encourage new participants, and must be within the range that maintains protection against the aggressive policies of rivals and achieves a reasonable profit above their cost of production. Rothschild's motive for safety and profits is nothing more than maximizing profits in a slightly different guise.
According to him, the company's main objective is not to maximize profits, but to satisfy or satisfy benefits. He is engaged in a constant struggle to achieve and maintain a secure position in the market, like a military strategist. The company must maintain good relations with its supplier for a regular supply of quality raw materials. Sometimes, companies may not have a profit maximization objective since they cannot determine their actual marginal cost and marginal revenues. Despite these criticisms, maximizing sales is an important objective pursued by commercial companies. The managers who control the company know its daily life and may have objectives of maximizing revenues such as offering their employees better benefits, health benefits, bonuses etc.
Baumol's conclusions about American oligopolistic companies reveal that they are pursuing the objective of maximizing sales. Discretionary profits or investments (D) are what is left with the manager after paying taxes and dividends to shareholders in order to maintain effective control of the company. Based on certain tastes and technologies, price and production of a given product under conditions of perfect competition are determined with only one objective: maximizing benefits. Companies can pursue other goals such as maximizing growth or survival which can also be referred to as maximizing sales. Kafolgis prefers maximizing production over both profit maximization and revenue maximization as a company's objective.
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