Critique- of the Profit Maximizing Theory

Considerable controversy has developed about the realism of the assumption of goal of profit maximization. Advocates of alternative theories argue that in real world, firms pursue other goals such as- revenue maximisation, sales maximisation, size maximisation, maximisation of utility function, and satisfying behaviour. Further, the assumption of perfect knowledge of the market conditions has been criticized on the ground that in real world, business firms function under uncertainty. They do not have knowledge of the demand and cost conditions.

Despite these limitations, traditional economists have defended the theory of profit maximisation on various grounds. Profit maximisation seems to be the basic objective of all business firms. The assumption has been found to predict behaviour of firms accurately says, Friedman. There is no other theory of firm that is generally acceptable.

The traditional theory does not differentiate between owners and managers. The alternative theories namely, the managerial and behavioural theories separate ownership from management. As a result, managers in large corporations strive to maximise their utility rather than maximise profits. 

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