OBJECTIVES OF A

FIRM

By: ANKIT
BHARDWAJ
Roll No.:
91004
 FIRM

• The Firm is a unit engaged in

production of goods and services,
and for which it organizes
resources.
•
• Its aim is to meet demand of
customers and to earn profit by
sale.
 Objectives of Firm
• The main aim is to maximize the
profit.
•
• But in the joint stock companies
the alternative objectives are also
there:
1.Profit maximization
2.Growth Maximization
3.Maximizing of satisfaction
4.Sales maximization
 Meaning of Profit
• Profit means the earnings by a
company from its operations.
• There are mainly two types of profit:
1.Economic Profit: It is also called
Pure Profit
 Economic Profit = Total Revenue –
Total Cost
 (where Total Cost = Explicit Cost +
Normal Profit)
 So EP = TR – (EC + NP)
 Conditions for Profit
Maximization
As Profit = Total Revenue – Total
Cost
 P = TR – TC
The two conditions are:

1.Marginal Revenue (MR) = Marginal

Cost(MC)
2.Slope of marginal revenue curve
should be less than the slope of
marginal cost curve or,
marginal cost curve must cut
 Arguments in favour
1.Strongest Motive
2.
3.Essential for Survival of the Firm
4.
5.Accurate Prediction
6.
7.Empirical
8.
9.Efficiency of the Firm
 Arguments Against
1.Uncertainty
2.
3.Goal of Joint Stock Company may be
different
4.
5.Unrealistic Assumption
6.
7.Impractical
8.
9.Accent on Liquidity of the firm
 Sales Maximization
 In order to maximize total revenue
by sale of goods, a firm produces
that much quantity of the goods
where marginal revenue becomes
zero.


 Hence for the Sales Maximization

 MR should be zero
 i.e. MR = 0
 Arguments in favour
1.More Realistic
2.
3.More Practical
4.
5.More Availability of Loans
6.
7.Strong Position in Market
8.
9.More Advantageous to the Managars
 Arguments Against
1.
2.Profit Constraint
3.
4.Unrealistic Assumptions
5.
6.Limited Scope
•
•

 THANKS.