What is the goal of the firm?

(Ch 1)

Not This One

Maximize Profits

Maximize Shareholder wealth

Minimize costs

Solutions

Expert Solution

ANSWER : GOAL OF THE FIRM IS TO : MAXIMISE SHAREHOLDERS WEALTH

PROFIT MAXIMIZATION IMPLIES MAXIMIZATION OF PROFIT IN $ TERMS BUT MAXIMIZATION OF WEALTH MEANS BETTER PROFITS IN TERMS OF RETURN ON SHAREHOLDERS FUNDS WITH TAKING INTO ACCOUNT TIME VALUE OF MONEY.

SO IF 2 FIRM EARNS SAME PROFIT BUT ONE EARNS EVERY YEAR 100000 FOR 10 YEARS AND SECOND EARNS 1000000 IN THE 10TH YEAR, BOTH HAS SAME PROFITS BUT FIRM 1 WILL HAVE HIGHER PRESENT VALUE OF PROFITS THAN SECOND FIRM.

S0 MAXIMIZATION OF WEALTH IS THE MAIN GOAL. Thumbs up please

jeff jeffy answered 1 year ago

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