Monday, May 20, 2013

Goals of the Firm (Everything else that's not Profit Maximisation)

Of course there are lots of other reasons a firm will want to stay in business other than making profits (we're not that materialistic). Here are some other factors that might motivate a firm to stick around other than making profits (although they all tend to come back to profit making anyway):

  1. Growth - growth is typically a long term goal that involves expanding the organisation. We businesses grow they benefit from economies of scale and will end up making more profit. 
  2. Sales Maximisation - This goal involves selling as much of the product as possible, not actually focusing on making a profit (you might end up making less since you might drop the price too low). Why the hell would you do this? Well some managers and employees get paid according to how much stuff they sell or the firms sales revenue, not necessarily the profit. Also by dropping prices and increasing sales, the firm attracts customers so you get a larger market share and more prestige n shit. 
  3. Market Dominance - This is where you wanna be the very best like no one ever...is...currently in the market. You wanna freaking DOMINATE. You want everyone buying your shit. Of course this doesn't necessarily mean you have a monopoly, just that you have the largest market share. 
  4. Satisficing - this is basically when the firm tries to achieve a satisfactory level of a attainment of a number of objectives....like the bar minimum to keep you going. You typically see this with startups or new firms who just wanna survive a month. So maybe instead of planning world domination they just wanna make their normal profit of $2000 this month and maybe get 10 more customers. Sometimes you can have conflicting goals though; you might want to maximise your sales and your profits, you see why this can't happen right? You'd sell more if you drop your price below the profit maximisation level...so it doesn't always workout and you may just end up coming to a compromise of 
There are other things firms might want to do like improve people's lives n shit but that's not really important here. 

1 comment:

  1. Dude you are awesome I needed this information and now i dont think i'll forget it

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