Profit Maximization Essay

Length: 2 pages Subject: Economics Type: Essay Paper: #32310065 Related Topics: Wealth, Stakeholders, Corporate Finance, Climate Change
Excerpt from Essay :

Corporate Objective

I do not think it is necessary to have a single-valued objective function. Maximizing firm value is not mutually exclusive to all other objectives, first. Second, that's like saying that human should only seek to maximize his or her net worth -- it's absurd. A corporation is an investment vehicle, yes, but that's not all it is. As for the idea that firm value maximization is the best objective function, that's not entirely true either. It's important -- you wouldn't have a firm in the capitalist sense of the word without some value maximization, but if the firm didn't provide jobs, for example, it would also not exist. Every firm provides a living for at least one person -- and they do that before firm value even enters into the question.

Freeman's stakeholder theory reflects the idea that the firm should be governed by the interests of its stakeholders. Jensen is arguing that within this context, value maximization should be paramount. Freeman does not opt for value maximization as his primary driver. Jensen does, allowing mostly that other things might also be important sometimes as well.

3. Freeman argues that tradeoffs should be avoided. That managers can find solutions that do not require such direct tradeoffs of shareholder vs. stakeholder, but that with some creativity and sound thinking, managers...


Porter thinks that businesses can be good at solving social problems because business have a profit motive. The profit motive will drive business to utilize the resources it has access to -- which are substantial -- to solve problems. Profit will then create momentum towards a solution as well, as profits are reinvested, more companies enter the industry, etc.

5. Porter's perspective is still a little bit inconsistent with Jensen's. They are quite similar, both believe in profit, maximizing firm value and things like that. But Porter is basically asking business to tackle social problems, because it can and maybe there will be some profit out of it. Jensen is saying business has to think about profit in the long run. So Jensen goes back to profit maximization -- say, oil companies -- while Porter is positing the business can address climate change. Maybe it can deal with climate change better than government, but with public goods and negative externalities, Jensen's value maximization might focus on other things with more short-run payoffs.

6. Vogel's solution to market failures is that public policy steps in, which changes the incentives of managers so as to align the interests of shareholders and stakeholders.

7. Leland argues that stockholder maximization is so important in the context of the economy, and that companies drive innovation in our society.…

Cite this Document:

"Profit Maximization" (2014, November 14) Retrieved February 8, 2023, from

"Profit Maximization" 14 November 2014. Web.8 February. 2023. <>

"Profit Maximization", 14 November 2014, Accessed.8 February. 2023,

Related Documents
Profit Maximization Theory Profit Is
Words: 1367 Length: 5 Pages Topic: Economics Paper #: 76856201

The red line denotes marginal cost and this also increases as the production increases. The shaded region is the profits of the firm. The price line is also the marginal revenue and the average revenue for the firm. So, the company earns profit only when marginal cost is less than the marginal revenue (the area denoted by the shaded portion). When marginal cost increases more than the marginal revenue,

Profit Maximization: An Actual or Theoretical Objective
Words: 1577 Length: 5 Pages Topic: Economics Paper #: 60362890

Profit Maximization: An Actual or Theoretical Objective? Profits are necessary to day both for the capitalist socialist and any type of economy to survive. Multinationals and giant companies have the profit motive and therefore maximizing profit as the base of their operations. This also goes under a new label namely stock holder gain. This is a form of profits that happens when the profit margins of the company go up and

Profit Maximization of Monopolistic Firm and the
Words: 943 Length: 3 Pages Topic: Economics Paper #: 9338509

profit maximization of monopolistic firm and the benefits and disadvantages of a monopoly to a consumer. MONOPOLY The central theory in all of the profit-maximizing outcomes rests on the idea that marginal revenue should equal marginal cost. The same is true in the case of a firm with monopoly power. Before we discuss the profit-maximizing outcomes, it is important to understand what is meant by monopoly and how does it affect

Business Economics Profit Maximization Theory
Words: 1752 Length: 6 Pages Topic: Economics Paper #: 26164520

They presented the idea that "business firms maximize profit as a means to maximize the utility of their owners. In a word: businessmen maximize profit as a means to maximizing utility, so profit maximization follows from utility maximization" (Ormazabal). One may observe that this approach is quite similar to that of the new institutionalists a few decades ago, mentioned above. This approach considers that profit maximization does not seem

Profit Is the Purpose of
Words: 726 Length: 3 Pages Topic: Economics Paper #: 52287882

He believed that people cannot be trusted to act in their own best interest, and are better governed by a state that usurps the profit motive thought process from the people. He understood the evils of the profit motivator in business, and sought to artificially remove it from the equation. However, he too understood that it is natural to seek profit as the motivation for business, as he acknowledged

Profit Pools in the Green
Words: 730 Length: 2 Pages Topic: Urban Studies Paper #: 54028863

It isn't one size fits all anymore, either, thanks to modern computer-design methods that let architects vary the prefab houses the way Lego blocks can be moved around. More than that, though, architects think the new avant-garde looks can win over upscale buyers craving a touch of high design for their abodes" (Jeffrey & Keats 2004). Modular homes are both unique and inexpensive -- a perfect option for new