However many Economists and managerial Scientists in our days question that the sole aim of a firm is the maximisation of profits.

The most serious critique on the theory of the firm comes from those who question whether firms even make an effort to maximise their profits. A firm (especially a large corporation) is not a single decision-maker

, but a collection of people within it. This implies that in order to understand the decision-making process within firms, we have to analyse who controls the firm and what their interests are.

The fact that most large companies are not run by the their owners is often brought forward to support this claim. A large corporation typically is owned by thousands of shareholders, most of whom have nothing to do with the business decisions. Those decisions are made by a professional management team, appointed by a salaried board of directors.

In most cases these managers will not own stock in the company which may lead to strongly differing goals of owners and managers. Since ownership gives a person a claim o

Furthermore, when confronted with the owners demands for profit maximising policies, a clever manager can always argue that her engagement in activities, like a damaging price war or an expensive advertising campaign serve the long-run prospect of high profits. This excuse is very difficult to challenge until it is too late.

Other ways to control managers include performance based pay, which can prove to be effective in the short-run but again, the long-run perspective of the firm may suffer, when managers neglect crucial

In conclusion it is important to note that profit maximisation fails to demonstrate a general validity when applied as a theory of firm-behaviour. The real world businesses often operate on a multi-dimensional basis with many confronting interests and aims. As well as differing short-run and long run aims. Therefore profit-maximisation should be regarded as one possible goal of a firm but not necessarily its sole one. There is also a difference to be noted between the size of firms. A small family-run business for instance can easily adopt a pure profit-maximising approach, since the utility of its owners equals that of the labour-force and the management. In this setting, the income will equal profit.

Figure2 shows a total profit curve (T). T is derived from the difference between TR and TC at each output level. If the minimum acceptable level of profit is , any output greater then Q3 will result in a profit below . Thus a sales-maximising manager will opt for Q3 which gives the highest level of sales at the minimum possible profit. This however would not be the profit maximising option. In order to maximise profits the manager would have to chose an output level that creates Q2, where profits are highest but sales lower then in Q3.

Another aspect is that managers aiming to m

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Approximate Word count = 1246
Approximate Pages = 5 (250 words per page double spaced)