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| Profit maximization |
There are different ways to look at the behavior of the firms of organizations and how they are used are different from time to time. Modern-day organizations are paying more attention to every method. Due to this trend today I am Disagree with this statement. I will explain the point in the following way.
There are 04 main sections in the behavior of
firms. It is respectively,
- Profit maximization (MR=MC)
- Sales maximization
- Principal-Agent problem
- Satisfaction Theory
A modern-day business paying attention to maximizing profit is not always a success. Focusing on other firms of the organization helps to improve the organization. Let us explain below how it works.
Profit maximization firm
Profit differs from to firm. The theories of profit attempt to explain these differences. Some of these are as follows.
Risk bearing theories
of profit
Frictional theory of
profit
Monopoly theory of
profit
Innovation theory of
profit
Managerial efficiency
theory of profit
There are some limited
aspects of profit maximization because these limitations arise from just
thinking about only profit maximization. It is,
- Product quality - customers create a negative attitude towards the reduced product quality of their products to maximize profits
- Employee Training - a great way to reach the maximum benefit in management is to cut employee training or research and development budget. Although this will reduce operational costs, and maximize short term profits. It will not help the company to reach any long term sustainable goals and potentially harm the employees. Employees training are necessary to maintain long term benefits to any company while creating happy employees. Without a satisfying workforce, your company will fail and no corner cut bones will be worth it to maximize profit.
- Long term goal
Sales maximization
Sales maximization means making the most sales
revenue possible without the business taking a loss. Marginal revenue equals
zero (MR=0) this point we can identify the sales maximization. All companies
try to increased sales because as it helps to increase market share, so does
the reputation of organizations. Modern-day companies are taking various
measures to increase their sales. It brings more attention to eve.
Ex: - L.B Finance offers various incentives to sales
managers to increase their sales. Another thing is L.B Finance most expenditure
to develop marketing for the company name. L.B Finance are not always trying to
direct profit maximization
Principal/Agent problem
The principal-agent problem is a conflict in priorities between a person or group and the representative authorized to act on their behalf. An agent may act in a way contrary to the principal's best interests. The principal-agent problem is as varied as the possible roles of principal and agent. It can occur in any situation in which the ownership of an asset, or a principal, delegates direct control over that asset to another party or agent.
Satisficing theory
01. Good
place for employees to works
02. Good
products or services to customers
03. Act
as a good citizen in our society
04. Corporate
social responsibility (CRS)
Good place for employees to works – this is a men
point in any organization because satisficing employees are imported to achieve
to organization objectives. Top organizations take various steps to create a
quality work environment for the employees. In addition to maximization profits
today, more attention to these aspects can help organizations succeed.
Ex: - Unilever is one of the leading companies in
Sri Lanka. In addition to maximization profit, this company is always looking
for ways to make employees happy. Various festivals are held annually by the company
at the expense of the institute. Quality resources are housed within the
organization to enable the employees to work. These factors increase employee
satisfaction and create a conducive environment for employees. Modern-day
Unilever Company knows about cannot be considered as the most appropriate only
profit maximization theory firm.
Good products or services to customers – when the organization
provides quality goods and services to customers, they should not be concerned
about maximization profit. Because when an organization provides quality goods
and services at a high cost, it will not be profitable. But by delivering
quality products and services to customers, you can make a big profit in the
long run. Nowadays, many businesses have failed to maximize profit without
being concerned about providing quality goods or services. Here is an example.
Ex: - ETI finance company has been subjected to many
problems due to the inability to provide quality service to its customers
continuously. This is mainly because they only think about profit maximization.
These companies have tried to maximize profit by neglecting the service to
customers. There is even a court case regarding that.
Ex: - "Maliban Biscuit" Company has been able to
expand its market share since its inception to protect its quality. The company
also manufactures high-quality raw materials for its products, thus securing
its brand presence in the overseas market.
Act as a good citizen in our society – this means in
the short run, the society needs to act in a manner that is important and
exemplary to the profiteers and not to the detriments of society.
Ex: - “S.R. Property sharing investment (Pvt) Ltd”
and “Sakvithi Constructions” that company owner "Mr Sakvithi Ranasinga" act as a not
good citizen in our society. Therefore these companies are shut down. Because
these companies think only about short terms profit and it is not concerned
good citizen in our society.
Corporate social responsibility (CRS):- This is the most imported one from this organization that can get a good reputation and this is community wellbeing from doing CSR
This CRS is operated by all companies that have a good reputation in Sri Lanka and are engaged in large scale manufacturing and services. They do not profit from these activities, but there is a cost to doing these things. Nowadays, all these CRS are done to stay competitive.