Goals of the firms

Goals/Objectives
 Goals/Objectives

Economic and Non-economic goals

Economic Goals
Profit Maximisation:
Traditional theory
Profit=Total Revenue-Total Cost
Residual profit
 1. Profit Maximisation...
TC

TR
TR/TC

Qmax Q
2. Sales Revenue Maximisation
How much is maximum output and
maximum profit?
Where should the businessman stop
producing given the TR and TC?
Why beyond maximum output?
Sales Revenue Maximisation...
According to William Baumol the modern
business is managed by professional
management.
The owner, shareholders and manager are
different individuals.
If the paid manager focuses on profit, he or
she will not benefit as much as the owner.
The profit in one year can be more or less
than the previous year.
 Sales Revenue Maximisation...

Thus it is in the interest of the paid manager to focus on

sales revenue maximisation rather than the profit
maximisation goals.
Increasing sales will increase the market share of the firm.
Getting loans from the banks becomes easier.
Manager finds it easy to control the personnels working
under him.
Sales Revenue Maximisation...
It solves the problem of determining
maximum profit.
The increase in sales brings increasing
name to the owner, as the products will
have better brand or trade mark.
The over all goodwill of the firm will
increase.
 3. Utility Maximisaation
Owners utility is a function of
(Profit, Prestige, self esteem, Increase in
brand or trade mark, increase in market share)
 Managers Utility is a function of
{Salary, other benefits (Bonus,
Commission), Job security, Power to
control work force, higher sales}
Utility Maximisation and growth

The common function of both owners and

managers are increasing sales or to have a
higher market share.
Therefore both will agree to have a higher
market share as the objective of the firm.
4. Share Holders Wealth Maximisation
The share holders wealth maximisation is
to increase the wealth of the investors.
The higher percent of dividends on the
shares, the bonus shares, or even doubling
of shares of the shareholders are the
methods of increasing the wealth of the
shareholders. Eg, Tata, Reliance, etc.
This objectives help the firms to raise
money from the stock exchanges easily.
5. Managerial Discretion
The managerial discretion is a function 0f
(salary and other benefits, number of staff
and discretionary power in decision making
regarding investment).
The manager will strive for decision making
power.
Md=f(S, Nw, I)
 6. Long run survival of the firm
The products on an average remains in the
market for one generation.
As products has a life span, firms also have a
life span of 20 to 25 years on an average.
Therefore if firms have to survive for a
longer period, they need to upgrade the
products, introduce new products.
The firms will have to undertake research
and development in order to innovate.
 7. Cyert and March
Empasised on satisfactory achievements of
all objectives rather than maximisation of
profits. Firms need to focus on following
aspects:
Production
Inventory
Market Share
Sales
Profits
Non-Economic Goals
Goodwill
Political
Social
Cultural
Personal
CSR