Is profit maximisation the most important objective of firms?

Usually in traditional Economic theory we assume firms are profit maximising. In reality this may not be the case.Short run firms seek to maximise sales - e.g. Amazon to gain market share (monopoly power). However maximise profits in long run, Amazon have raise prices. Principle- Agent problem As firms grow, the owners (who want profit) have less control and control is often transferred to managers. Managers want more sales so that they can increase their personal incomes, so as a result the firm becomes sales maximising, leading to lower profits. However, firms often combat this through employee ownership schemes such as John Lewis. Makes employees maximise the firm's profits as they get money from dividends.Some firms may have a social or ethical objective.Some firms may have the aim to reduce pollution for example, so do not choose to maximise profits, but instead spread awareness about their cause. However, firms may use this as a USP to boost profits. Also comment on exam technique - examples, balanced argument, PANEL Paragraphs, diagrams, intro/conclusion

JW
Answered by Jed W. Economics tutor

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