What is meant by the term democracy

A detailed Summary of What is meant by the term democracy

If firms were not in a competitive environment, they would be able to control the market. Still, there are other factors, which stop firms from controlling the market. Namely the fact that firms do not have perfect information, issues about its objectives or firms may not even know how to maximise profits. This is due to the fact that companies use different pieces of information or interpret it differently.

Firms can use different tasks in order to achieve the same aim. Companies often set themselves in mission statement; or they try to set goals by which the statement will be achieved; or a specific objective.

A firm aims to maximise profits, and that is what this essay will focus on. First, it will give a brief definition of firm and define its objectives. Second, it will examine the assumption of profit maximisation. Third it will confirm whether firms really maximise their profits. Then it will follow by mentioning other alternatives to profit maximisation. Finally in the conclusion, it will include the results of this essay.

It is understood by firm ' an organisation consisting of one or more individuals working as a decision-making unit to produce goods or services' (Atkinson, B. & R. Miller "Business Economics"). The f

Still, there is other theory that states that managers in fact do not maximise anything at all, but they attend to satisfactory levels, theory developed by H. Simon. Here, managers will set a minimum level of profit, keeping shareholders satisfied. This type of approach is probably used by small firms, which are not able to take the big risks that profit maximisation can lead to. Moreover, managers try to keep all members of the firm satisfied, so profit maximisation becames a hard task to achieve.

However, there are still motives for companies to refuse to have high levels of profit. Companies will just be able to maximise profits if owners are in control of the firms. However, in big companies such as Coca-Cola or Shell where, probably, there are many shareholders, it is more difficult to maximise profits. As, in this case managers are more likely to run the business. This leads us to do so called 'principal-agent problem'. Where owners' objectives may be different from the managers. Hence, due to the rise of the joint-stock company there has developed a split between ownership and control. Ownership belongs now to shareholders, while managers exerce the power of controling. Still, there are motives to choose to maximise profits. Firstly, profit maximisation is still a sign of power, so in a competitive environment firms will opt to maximise profit to ensure its survival; Secondly, both the principal and agent, when confroting a situation of no option, they would prefer to maximise profits rather than lower them; Most impor

Some common words found in the essay are:
Coca-Cola Shell, TR TC, , Business Economics, profit maximisation, maximise profits, firms maximise profits, ownership control, maximise profit, marginal cost, total revenue, called total, firms maximise, managers try, total cost,

Approximate Word count = 1037
Approximate Pages = 4 (250 words per page double spaced)

Category: Politics