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Evaluate Whether Profit Maximisation Is Always the Most Important Objective of Firms. (25 Marks)

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Profit maximisation in the short run occurs when marginal revenue is equal to marginal cost. This means the firm produces until the last unit produced has revenue equal to its cost and is shown in the diagram below.

Whether a firm will always aim to profit maximise will depend on a number of different reasons, firstly the criticisms with MR=MC are that it is difficult for a large firm to estimate their demand curve for their thousands of products, no matter how much market research they put into to try to find this it will be almost impossible, because of this it will therefore mean that there is no way a company can find the point at which MR=MC and therefore will not be able to say at X number of units sold we will be profit maximising and therefore in reality a firm's goals are to aim to get as much profit as they can. Also it is difficult to determine the period of time the firm would wish to maximise over, both the MR and MC curves will both change over time and therefore will make it again hard to be able to tell the exact time at which a business is profit maximising. Also different companies have different objectives, the stakeholders of a company will also play a large part in determining whether a company will aim to profit maximise, for example in a PLC where the company is owned by shareholders then the idea of profit maximisation is a good one, as shareholders will be more interested in how much profit the company they have invested in has made and how much they will get in terms of dividends than how many sales the company has made in the past year, however if the managers were the largest stakeholders in the company then they may look to sales or revenue maximise as opposed to profit maximise as some companies may judge their managers in terms of sales figures and their earnings may be directly linked to this.…...

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