Profit maximization - Objectives of Business Entity
Conventionally, this was considered to be the main goal of the firm. Profit maximization refers to getting the highest possible profits throughout the year. This would be achieved via either increasing sales revenue or via reducing expenses. Notice as:
Profit = Revenue - Expenses
The sales revenue can be increased through either volume selling price or the increasing the sales. However it should be differentiated, such maximizing sales revenue may on the same time effect to increasing the firm's expenses. However the pricing mechanism will, assist the firm to determine such goods and services to give so as to maximize profits of the firm.
The profit maximization goal has been criticized since of the following like:
- It avoids time value of money
- It avoiders uncertainties and risk
- It is vague
- It ignores another participant in the firm quite than shareholders.