Objectives of the Firm
Firms operating in an industry and facing the same competitive environment differ in behaviour and also register different profit levels Objectives of the firm play a significant role in the decision making process of a firm and the profits achieved. A manager has to make rational decision in face of constraints due to scarcity of resources. Clear and unambiguous statement of goals of the firm can be regarded as the first step to produce efficiently and maximise profits.
In this chapter, Vie will discuss the rationale for the existence of a firm, basic function of a firm followed by the major objectives pursued by a firm. A general theory of firm cannot be put forward as firms pursue numerous goals.
To apply managerial economics to business management, we need a theory of the firm, a theory indicating how firms behave and what goals they pursue. There are a number of theories of the objectives of the firm. Single theory applicable to all firms is not available as firms pursue more than one objective. Still, profit maximization is considered as the objective pursued by almost all business firms.
Major theories of objectives of the firm discussed are shown
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