Profits are measured over a period of time --- generally ayear. That is from 1
April to 31
March. Profits are measured by accountant inaccordance with accounting methods. But the economists approach is differentfrom the accountant. While calculating profits, the accountant deducts theexpenses from the revenue of the company. But when expenses are consideredhe takes into account only the explicit costs; that is, actual costs. The economiston the other hand, does not stop at explicit coasts, he takes into account imputedcosts as well. By imputed costs we mean, the costs that would have beenincurred on any item if it had not been owned by the company.
A firm may be housed in its own building. Now the economist calculates the rentof the building at the prevailing market rate and treats that as cost. This is knownas imputed cost.It is evident, then, that the accountant and the economist differ in their approachto the measurement of profits. The formula may be written as follows:Accountant’s FormulaProfit = Revenue Expenses (explicit costs)
Economist’s FormulaProfit = Revenue Explicit Costs Imputed Costs.
Economic profits are considered to be more realistic from the managerial point of view because they project a true financial picture of a company.
ALTERNATIVE OBJECTIVES OF BUSINESS FIRMS
There is no reason to believe that all businessmen pursue the same objective”Recent research on this issue reveal that the objectives that the business pursueare more than one. Some important objectives other than profit maximization are: (a) maximization of sales revenue, (b) maximization of the firm’s growth rate, (c)maximization of manager’s utility function, (d) making satisfactory of profit,(e)long-run survival of the firm and (f) entry prevention and risk avoidance
1.Sales revenue Maximization
Baumol has postulated maximization of sales revenue as the alternative to profitmaximization objective. The reason between this objective is the dichotomy