Alternative theories to profit maximization

Profit maximization has a greater predicting power: Economists have considered profit maximization as one of the important business objective of organizations. Markets have four different structures which need different "attitudes" from the suppliers in order to enter, compete and effectively gain share in the market.

The conventional theory of economics assumes profit maximization as the sole objective of organizations. Saying this means that Alternative theories to profit maximization seek always to be at a position where profit is maximized. Market Structures One of extremes is perfect competition. Implies that profit acts as a necessary condition for the success of an organization.

Recent Topics

Companies and The Market Most companies are profit oriented. In all of these we Alternative theories to profit maximization also considering that there are no "market The first order condition states that first derivative of profit must be equal to zero.

Implies that alternative objectives of organizations, maximization of growth rate, maximization of sales, and high market share, can be achieved with the help of profit. Fraud like tax fraud is also a distortion that affects your competitiveness and ultimately may dictate whether your perceived oligopoly can become a monopoly or a monopolistic competition.

However, in the real world, there are various other objectives fulfilled by organizations. When competing, one can be in a perfect competition, in a monopolistic competition an oligopoly or a monopoly [1]. Surely this would drive the other companies out of business or severely impact its sales turning the market into a near monopolistic market for example.

Companies survive and live on profit. Apart from this, the conventional theory also assumes that organizations have perfect knowledge of the business environment, demand, and cost conditions. Each of these structures ensures different situations in regards to competition from a perfect competition where firms compete all being equal in terms of threats and opportunities, in terms of the homogeneity of the products sold, ensuring that every competitor has the same chance to get a share of the market, to the other end of the scale where we have monopolies whereby one company alone dominates the whole market not allowing any other company to enter the market selling the product or service at its price.

No company is big enough to actually force the market prices and the market would be highly competitive with all the stakeholders involved, highly informed of the situation at all points, both the supplier and consumer side.

Therefore, profit maximization forms the basis of conventional theories. Alternative Theories to Profit Maximization By: Controversy over Profit Maximization: Profit maximization is the most important assumption used by economists to formulate various economic theories, such as price and production theories.

Profit helps in achieving other objectives: Companies survive and live on profit.

Alternative Theories to Profit Maximization

When competing, one can be in a perfect competition, in a monopolistic competition an oligopoly or a monopoly [1]. The arguments against maximization of profit does not imply that theory of profit has no relevance or of less importance for business organization.

This would effectively allow him to undercut your prices while still making a profit. Second order condition requires that first order condition must be satisfied in case of decreasing MR and rising MC.

It is regarded as the most reasonable and productive business objective of an organization. All of these changes happen in what is called the market, where suppliers and consumers meet to reach a level that suits the interests of both parties involved.

All of these changes happen in what is called the market, where suppliers and consumers meet to reach a level that suits the interests of both parties involved. These hypotheses are shown in Figure Each of these structures ensures different situations in regards to competition from a perfect competition where firms compete all being equal in terms of threats and opportunities, in terms of the homogeneity of the products sold, ensuring that every competitor has the same chance to get a share of the market, to the other end of the scale where we have monopolies whereby one company alone dominates the whole market not allowing any other company to enter the market selling the product or service at its price.

Saying this means that companies seek always to be at a position where profit is maximized. If you are in a monopolistic competition market and corruption is very high, it may turn out that the market structure you are in is only perceived as monopolistic competition as only the companies who engage in that practice will effectively secure typically large business will be in such reduced numbers that it can be defined as a oligopoly or even a monopoly.

Numerically, the second order condition is given as: Is this scenario, every company is a price taker. It acts as a major source of internal finance for an organization.

Apart from this, profit maximization helps in determining the behavior of business organizations as well as the effect of various economic factors, such as price and output, in different market conditions.

According to a study, in developed countries, internal sources of finance contribute more than three fourth of the total profit.

Principles of Economics

The hypotheses given by economists in favor of profit maximization as shown in Figure-3 are discussed as follows: Therefore, they have made certain hypotheses mentioning the importance of profit maximization.

Some other important objectives of organizations include sales maximization, growth rate maximization, managerial utility function maximization, and retention of market share. These are the issues with fraud and corruption which I face a lot in Angola and see that Africa, Asia and South America is ridden with it, but also see it in developed countries it happens creating market distortions which affect whatever market structure you are in.alternative to profit maximization Audio (1) Principal-Agent theory: Neo classical theory of the firm focuses on profit maximization as the single most goal of the firm.

Alternative Theories to Profit Maximization. Alternative theories to profit maximization ranging from perfect competition to strict monopolies. Companies and The Market Most companies are profit oriented.

Companies survive and live on profit/5(1). Alternative theories to profit maximization ranging from perfect competition to strict monopolies. Companies and The Market Most companies are profit oriented.

Companies survive and live on profit. Even governmental institutions, NGO's and NPO's are profit oriented, what they do. Profit Max at Price P1. AR (Demand) Q1. Q2. MC. AC1. AC2. P2. P1. MR.

Profit Maximization: Theory and Controversy (With Diagram)

AC. Costs. Price and output differs if the firm changes its objective from profit to revenue maximisation. Assuming that the firm’s costs remain the same, a firm will choose a lower price and supply a higher output when sales revenue maximisation is the main objective.

Profit maximization is the most important assumption used by economists to formulate various economic theories, such as price and production theories. According to conventional economists, profit maximization is the only objective of organizations.

Download
Alternative theories to profit maximization
Rated 0/5 based on 69 review