Upload
anuj-gandhi
View
251
Download
0
Embed Size (px)
Citation preview
7/31/2019 Managerial Decision Making(Lect2)
1/19
7/31/2019 Managerial Decision Making(Lect2)
2/19
OBJECTIVES OF A FIRMMEANING OF FIRMFirm includes all those enterpriseswhich are related with the productionnot only of goods but also of services.
It may be an individual proprietor, partnership or joint stock company.
7/31/2019 Managerial Decision Making(Lect2)
3/19
OBJECTIVES OF A FIRM
Profit Maximisation Revenue or Sales Maximisation Maximisation of Satisfaction Security profits Growth Maximisation
Maximisation of Managerial utility orDiscretion
7/31/2019 Managerial Decision Making(Lect2)
4/19
Satisficing Theory Cyert and Marchs Behavioural
Theory
7/31/2019 Managerial Decision Making(Lect2)
5/19
Profit Maximisation Profit maximisation as the only
objective of the firm. It is regardedas the most reasonable and the most
productive business objective.
Profit is calculated by deductingtotal cost from total revenue.
P = TR - TC
7/31/2019 Managerial Decision Making(Lect2)
6/19
PROFIT Economic Profit = TR-TC Accounting Profit = TR-Explicit costs
7/31/2019 Managerial Decision Making(Lect2)
7/19
Arguments in favour ofProfit Maximization Goal
Strongest Motive Essential for the survival of firm
Accurate prediction Empirical Efficiency of the firm
Proper explanation of the behaviourof group of firms
7/31/2019 Managerial Decision Making(Lect2)
8/19
Arguments against ProfitMaximisation
Uncertainty The goal of joint stock companies
may be different Impractical Liquidity of firm Government interventions
7/31/2019 Managerial Decision Making(Lect2)
9/19
Revenue or Sales
MaximisationSales maximisation means that
managers of firms seek tomaximise their sales subject tothe constraint of earning a
satisfactory profits.
7/31/2019 Managerial Decision Making(Lect2)
10/19
Argument in favour
More realistic More practical More availability of loans Strong position in market More advantageous to the managers
7/31/2019 Managerial Decision Making(Lect2)
11/19
Arguments against Profit Constraint Limited scope Unrealistic assumptions
7/31/2019 Managerial Decision Making(Lect2)
12/19
Maximisation of Satisfaction
An entrepreneur wants to maximisesatisfaction even at the cost of
profits. It is due to the fact thatafter certain level of profits, thepsychology of the entrepreneur willbe to give more preference to leisurein comparison to profits.
7/31/2019 Managerial Decision Making(Lect2)
13/19
Security profits
The firm is not by profit maximisationbut by the objective of security
profit. The struggle for position andto the setting of a reasonable pricewhich may provide secure profits.
7/31/2019 Managerial Decision Making(Lect2)
14/19
Growth Maximisation
The growth of a firm implies increasein its size, production and sales .
Demand and cost do not remainconstant and firms do want to growso as to motivate them to maximise
sales.
7/31/2019 Managerial Decision Making(Lect2)
15/19
Maximisation of Managerialutility or Discretion
Managerial utility function maximises the utilityof the managers rather than profits of the firm.
(Here, U = managerial utility; S = additionalexpenditure on staff; M = managerialemoluments & ID = discretionary investment)
U = f (S, M, I D)
7/31/2019 Managerial Decision Making(Lect2)
16/19
Satisficing Theory
Satisficing means satisfactoryoverall performance.
To attain a satisfactory level ofproduction To attain a satisfactory share of
market. To earn a satisfactory level of profit.
7/31/2019 Managerial Decision Making(Lect2)
17/19
Cyert and MarchsBehavioural Theory
Behavioural theory of the firm alsoregards satisficing as the main goal
of the firm.
7/31/2019 Managerial Decision Making(Lect2)
18/19
Conclusion The objective of the firm can be many.
The survival of the firm depends on theprofit.
Whatever the objective of the firm Sales revenue maximisation Maximization of firm growth
Long run survival It has to be a profitable organization.
7/31/2019 Managerial Decision Making(Lect2)
19/19