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Alternative Objectives

On June 15th, 2012, Posted by Author No Comments

Alternative Objectives

According to the standard theory of the firm the maximisation of their profit in the long as well as the short-term is the main objective of the firm. However the decisions regarding this also assume that the goal of profit maximisation is the singular goal of the all the entities present in the firm. In actual practice the firm may have many alternative objectives also due to the following reason:

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Modern theory of the firm recognises that the firm is actually a complex organisation made up of various groups and individuals who are the stakeholders of the firm. These stakeholders are all people with vested interests in the activities of the firm and include the employees of the business, the managers who are also employees of the business, the shareholders of the business with an equity stake in the firm, the consumers of the firms’ products in the market, the local community where the business is situated and the government and its various departments at the local, county and national levels.

It is probable that the objectives of each of the above groups are different at different points of time. This is known as alternative objectives. The implications of alternative objectives would mean that the group that is prevailing over the others at any one period is likely to stress on its own objectives while the others are not included. For instance the decisions taken by the managers at the local level on a particular issue may not be known to the shareholders immediately or approved by them.

What are the Implications of Alternative Objectives?

Some of the alternative objectives to the total profit maximisation strategy:

  • Satisficing Behaviour: the owners of the business may fix the lowest levels ofAlternative Objectives attainment of objective in both the revenue as well as the profit that they hope to make.
  • Sales Revenues Maximisation: some firm that are controlled by managers are seen to make price and output decisions that are dissociated from the owners and shareholders of the business (Baumol, 1959).
  • Managerial Satisfaction model of Williamson (1981) describes the concept of the managerial satisfaction or utility that can be boosted by raising the sales revenue
  • Constrained Sales Revenue Maximisation: in which the decisions of the managers are constrained by the shareholders. They could constrain a minimum profit decision in order to support their shares’ value so as to continue getting a dividend.

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