Profit maximization

Traditionally, this was considered to be the major goal of the firm. Profit maximization refers to attaining the maximum possible profits throughout the year. This could be attained by either raising sales revenue or by decreasing expenses.

Profit = Revenue – Expenses

The sales revenue can be raised by either raising the sales volume or the selling price. It must be noted however, that maximizing sales revenue may at the same time result to increasing the firm's expenses.

The pricing mechanism will though, help the firm to establish which goods and services to offer so as to maximize profits of the firm.

The profit maximization aim has been condemn since of the following reasons:

(a) It ignores time value of money
(b) It ignores risk and uncertainties
(c) It is vague
(d) It avoids other participants in the firm instead of the shareholders