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“Discuss the assumption that the firm’s main motivation is to maximise profits?”
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"Discuss the assumption that the firm's main motivation is to maximise profits?" The traditional theory (neoclassical) assumes that firm's primary objective is to maximize profits. That is if the firm is owner controlled. This assumption is based on that firms makes the output and price decisions. Also, that firm takes all necessary actions to earn the greatest profit possible. The managerial theory assumes firms do not necessarily act in order to maximize profits. The basic tenet behind this is the separation of ownership from management, complexity of the organisation and the firm's manager maximizes his own utility and growth rather than profits. The reason for this is that managers may be judged by the level of sales revenue. I will be providing supporting arguments for and against this assumption "that the firm's main motivation is to maximise profits" and draw a conclusion by analysing the firms behaviour as well as further...
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