Evaluate the view that all firms are aiming to maximise profits

Profit maximisation is an objective of a firm that seeks to produce output where Marginal Cost is equal to Marginal Revenue. Therefore, it is assumed rationally that this would be the most important objective. However, other objectives such as revenue and sales maximisation may also exist. Profit maximisation is always the most important objective as it allows he production of supernormal profit which may then be used to re-invest in new technology and production methods to sustain its dynamic efficiency. Therefore, from Figure 1, it is seen that to fully transfer consumer surplus into producer surplus to maximise profit, the firm must ensure that total revenue is higher than total cost. Furthermore, by maximising profit, the firm can attract shareholders who will be more confident of receiving dividend payments thus will be more likely to invest. However, a firm may have other objectives. Maximising sales by producing output at Q3 where Average Cost intersects Average Revenue and maximising revenue by producing output at Q2 where Marginal Revenue is equal to 0 can occur if the firm wants to increase its market share by predatory pricing. This would be to ensure barriers to entry remain high thus ensuring the firm maximises its supernormal profits in the long run by discouraging new entrants into the market. This can especially be the case due to the principal agent problem, whereby the owner is divorced from control, and a director manages the company therefore allowing him to have other objectives such as sales maximisation, especially if the director's own salary is based on sales.