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JasonZhang

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© JasonZhang A   /  2019-1-9 20:27  /   0 人收藏 版权:保留作者信息

Discuss whether firms always want to maximize profits and are able to do so in the way suggested by economic theory.

  If we want to find out what is the priority aim of one firm, we need to know who or which group of people (stakeholders) is actually controlling the firm. Because the objectives of a firm always represent the goal of the controller.

  If shareholders are the one who controls the firm, then the goal of the firm is very likely to be maximising the profit because they can gain most significant benefit from the profit maximising behaviour of the firm. However, in reality, the short-term profit maximising action sometimes conflicts with the long-term one. A high level of profit is very likely to attract new firms to enter the industries, which will take away a portion of the profit from the old firm. Government administrators may also take some actions to prevent firm gaining profit in a consumer or environment--Exploiting way. More reasons can explain why the firm does not choose the profit maximising level of output (MC=MR) in the short-run. (The alteration of market conditions and cost of production will also impede the frim from setting the appropriate MC=MR output level).

  We have known so far that shareholders might face multiple difficulties in maximising the profit of the firm when they are controlling the firm, not to mention the situation which other interest groups are actually taking control over the firm. Managers will maximise their benefits by doing revenue-maximising pricing (If their wages are measured regarding the sales revenue).

  Therefore, we know that firms will definitely want to maximise the profit of if shareholders are the controllers. However, it is not always possible for them to do so due to various obstacles, needless to mention ht circumstances where the firm is controlling by other stakeholders.


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