6. The firm should give prompt attention to the employee grievances and necessary suggestions should be provided. Start setting short-term objectives now. UU1 and UU2 are the indifference curves of the manager which show the combinations of D and S. To begin, as we move along the profit-staff curve from point F upward, both profits and staff expenditures increase till point P is reached. In this context, the firm may face three alternative situations: (a) The actual achievement is less than the aspiration level; (b) The actual achievement is greater than the aspiration level; and. Second, if expenditure on advertising is introduced in Baumol’s theory, the likelihood of sales maximisation is increased. This objective helps to shape the character of the company in the minds of the society. To establish a link between such a growth rate and the share prices of the firm, Marris develops a balanced growth model in which the manager chooses a constant growth rate at which the firm’s sales, profits, assets, etc., grow. 1. The desire to increase its security leads to the struggle for position and to the setting of a price which will not be so low that it provokes retaliation from rivals, nor so high that it encourages new entrants, and it must be within the range which will maintain a protection against the aggressive policies of the rivals and brine about a reasonable profit above its cost of production Rothschild’s security-profits motive is nothing else but profit maximisation in a little different garb. They provide finance by way of investment in debentures, bonds, deposits etc. But if sales are large, the size of the firm expands which, in turn, means larger profits. Williamson has developed managerial utility-maximisation objective as against profit maximisation. There must be regularity in supply of goods and services. He has shown that it is difficult to specify exactly the relevant profit constraint for a firm, and choose the sales maximisation and minimum profit constraint in Baumol’s analysis. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. TOS4. The firm is not maximising, since, partly on account of the cost, it limits its searching activities. To pursue his goal of utility maximisation, the manager directs the firm’s resources in three ways: 1. Despite these criticisms, Marris’ theory is an important contribution to the theory of the firm in explaining how a firm maximises its growth rate. Business and Society are interdependent. They should not undertake any malpractices and prevent the customers from being exploited. 4. Output Maximisation 6. The organisational slack is the difference between total available resources and total necessary payments to members of the coalition. Thus profits are measured on the vertical axis. The authorities should not exploit the employees. They contribute capital and bear the business risks. Business can raise the standard of living of the people of the country by making quality goods and services available at reasonable prices. If the firm is prepared to lower its profit goal, it will readily reduce its price. motivated employees put efforts and are dedicated towards their job. These are the following responsibilities of the business towards government are: ii. It is the responsibility of the business to keep the environment pollution free by producing pollution free products. Survival of stability objectives implies the maintenance of a firm’s competitive position or earning capacity or market standing. A proper work-life balance is one of the essential elements and goes a long way in making their work bot76h challenging and interesting. Second, if the firm is a multiproduct firm how the output of different products, say radio, TV, and watches can be added. A firm can have a number of objectives some of which can carry drawbacks. It is through such search activity that the firm will be able to reach the aspiration level set by the decision-maker. The business unit can prosper only if it enjoys the support of the society. This is unrealistic because no firm can sell anything to the consumers. But an entrepreneur does not aim at profit maximisation. Sales maximisation is not only a means but an end in itself. He does not clarify the basis of the derivation of his feasibility curve. The search process may be done through sequence of possible alternatives using past experience and rules-of-thumb as guidelines. He, therefore, does not explain how prices of products are determined in the market. He gives a number of arguments is support of his theory. In the second situation, when the actual achievement is greater than the aspiration level, the firm is satisfied with its commendable performance. The following are common types of business objective. Satisfaction Maximisation. Share Your Word File In this traditional economic theory, the typical firm was small, … Content Filtrations 6. Its sales maximisation output is OK where the total revenue KL is the maximum at the highest point of TR. Hence to face this stiff competition, it is necessary for the businessman to come out with new concepts and products for attracting the new customers and retaining the old one. But this view of Baumol is not realistic because the expenditure on advertising increases or decreases with the rise or fall in output. In the conventional theory of the firm, the principal objective of a business firm is profit maximisation. Its aspiration level is based on its different goals such as production, price, sales, profits, etc., and on its past experience. Before publishing your articles on this site, please read the following pages: 1. The managers aim at the maximisation of the growth rate of the firm and the shareholders aim at the maximisation of their dividends and share prices. In the figure, M is his point of maximum satisfaction where the net profit curve NP is tangent to his indifference curve L2. Wealth Maximization Objective 3. Setting up business enterprise as per the government guidelines. Business is also responsible to conserve natural resources and wild life and hence promote the culture. In this theory, maximum profits refer to pure profits which are a surplus above the average cost of production. If the sales of a firm are declining, banks, creditors and the capital market are not prepared to provide finance to it. “We must expect the firms goals to be not maximising profits but attaining a certain level or rate of profit holding a certain share of the market or a certain level of sales.” Under conditions of uncertainty, a firm cannot know whether profits are being maximised or not. Business can do justice with the society by providing them better quality products and services at reasonable prices. But the search activity is not a costless affair. Image Courtesy : bldgnet.com/images/ico3.jpg. objective of a business firm. In a modern large multiproduct firm, ownership is separate from management. Baumol’s model is illustrated in Figure 2 where TC is the total cost curve, TR the total revenue curve, TP the total profit curve and MP the minimum profit or profit constraint line. Resources comprises of physical, human and capital that has to optimally utilise for making profit. Various objectives of business may be classified into four broad catego­ries as follows: 1. Multiple Objectives 3. Consumers might not buy its products because of its unpopularity. They are the most important resource of the business. Rothschild has put forward the view that the firm is motivated not by profit maximisation but by the desire for security profits. These decision variables (S, M, and D) yield positive utility and the firm will always choose their values subject to the constraints, S 3 О, M 3 О and D 3 O. Williamson assumes that the law of diminishing marginal utility applies so that when additions are made to each of S, M and D, they yield smaller increments of utility to the manager. Innovation helps in reducing the cost by adopting better methods of production. It deals with particular cases whereas a theory is expected to be a general approximation of the behaviour of firms. Here the firm is not considered as a single entity with a single goal of profit maximisation by the entrepreneur. Suppose the minimum profit level of the firm is represented by the line MP. Prohibited Content 3. Competition is intensely rising. Sometimes they also sponsor games and sports at national as well as international level etc. 2. 5. Copyright 10. Business creates employment opportunities directly or indirectly. Business objectives are something, which a business organisation wants to achieve or accomplish over a specified period of time. But the aim of the firm is to maximise its sales rather than profits. According to him, the firm’s principal objective is not maximising profits but satisficing or satisfactory profits. Psychologically satisfied employees put best efforts in their work. This is nothing but maximisation of sales. It may be that the firm has set its aspiration level very high. The following points highlight the seven main objectives of a business firm. Businessmen engage themselves in research for improving the quality of products; some provide housing, transport, education and health care to their employees and their families. After all, consumers have their preferences for certain brands which also change when new products enter the market. The theory does not consider either the conditions of entry or the effects on the behaviour of existing firms of a threat of potential entry by firms. Suppliers supply raw material, spare parts and equipment’s necessary for the business. Thus the firm will produce a larger output and its revenue sales may be less than the sales-maximisation firm. The threat of take-over of the firm will loom large among the managers. For sales maximisation, the firm should produce that level of output which not only covers the minimum profits but also gives the highest total revenue consistent with it. 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