Introductory Elements

smuggling or prostitution are very profitable activities. whose intrinsic purpose is to make a profit for its owners • Individuals and organizations that make products and / or render services for other reasons than profit are working. not as a business person. but not doing business. but as a lucky guy. Selling an inherited house or grandma's silver and grandpa's stamp collection could make one very rich.THE CONCEPT OF BUSINESS a privately-owned commercial enterprise • State-owned enterprises are not businesses! The profit they make – if any – is managed by the government and local administration in order to achieve certain social and political objectives. but making money does not always mean doing business. because they harm a lot of people. . by means of legally selling on the free market products and services • Profit means money. designed to satisfy socially accepted human needs • Drug dealing. but they are illegal businesses.

PROFIT Two open questions about profit: 1. Is profit the sole and ultimate purpose of any business? .

the answer is affirmative. the right answer is negative. focused on a single business. Society needs businesses as means to satisfy human needs – the purpose of market economy. YES • From a narrow viewpoint. NO • Enlarging our perspective. technology. Each single business (X) is founded by its owners. raw materials. . as a system of resources (workers and managers. There are businesses (X. so that to encompass the social and economic system. Profit is a deserved reward for those who can satisfy the social demand. utilities. facilities.The answer depends on the broadness of our perspective.) ment to make a profit for the investors. Y. Z) insofar as they function as efficient means to fulfill the needs and wants of the people. who put at risk their capital. offered by businesses X Y Z Business needs society as means to make profit – its intrinsic purpose. offering business opportunities society system of needs and wants. demanding products and services. X society economic environment. etc.

How large should be the profit? .PROFIT 2.

reasonable • The supporters of the large. since this is the best way to satisfy the owners' interests. micro-level perspective logically claim that a good. . As a deserved reward for economic performance. profit should be 'reasonable'.PROFIT maximum • The supporters of the narrow. since this is the best way to satisfy the consumers' interests. macro-level perspective ideologically rather than logically claim that a good. competent and competitive management should aim at maximizing the company's profit (using methods permitted by the law). competent and responsible management should aim at the best fulfillment of the social needs and wants.

. and to support with objective reasons why. they strive to serve the best the public interest.PROFIT It's easy to define clearly what maximum profit means. Business persons are greedy. and to understand the objective logic of maximizing profit. selfish and irresponsible people. It's extremely difficult to define clearly what a “reasonable” profit means. Trying to maximize their profit. Business persons are not greedy. when and how profit should not be maximized. Obsessed with maximizing their profit. but rational self-motivated people. they don't give a damn about the public interest.

In a study published in 2003. Public Citizen’s Congress Watch noted that in 2002 average profits for drug companies in the Fortune 500 were 17% of revenues whereas average profits for Fortune 500 companies in all other industries were 3% of revenues. high monopoly profits. well beyond the average rate of profits in other industries. which gives them a monopoly on that drug for 20 years. are characteristic of the pharmaceutical industry. 17% 3% Period 1970s and 1980s 1990s today Drug companies median profit on revenues compared to all other industries in the Fortune 500 double 4 times 8 times .PROFIT IN PHARMACEUTICAL INDUSTRY Drug companies in the US are granted a patent on any new pharmaceutical drug they develop. Not surprisingly.

000%.PROFIT IN PHARMACEUTICAL INDUSTRY Drug companies say they need these profits to cover the costs of research for new drugs.000% over the cost of their ingredients. research 14% profits for shareholders advertising and administration 17% 31% A 2004 study of drug costs showed that prescription drugs have markups of 5.000% and 50. 30. Drug Ingredients cost / 100 tablets Selling price Norvasc Prozac Tenormin Xanax 14 cents 11 cents 13 cents 3 cents $ 220 $ 247 $ 104 $ 136 .