Question

1.The firm’s goal is to maximize profit . Is it the only goal? If not, … give examples …

2. Should the firm do EVERYTHING to REACH the profit / MAXIMIZE the profit

3. Social Corporate Responsibility. What is it ? To what extent can we afford it?

Answer 1

1. A firm is defined as a person or a group of persons that produces goods or services to meet a demand. In a perfect competition, new competitors can freely enter and exit the market.Firms have no control over price. It is determined by market demand and supply.Profit Maximization is termed as a short or long term goal to be achieved within a year by the firm in microeconomics. It stresses on the efficient use of capital resources. In order to maximize profit, the financial manager will implement actions that would result in maximum profits without considering the consequence of his actions towards the company's future performance.
   
   Drawbacks of Profit Maximization
   - Profit maximization is a short-term concept.
   - Profit maximization does not consider the timing of returns.
   - Profit maximization ignores risk.

It is calculated as : Profit = Total Revenue - Total cost

However, besides profit maximization, a firm should concentrate on various other aspects like increasing sales, capturing more market share, return on capital etc, which will take care of profitability. So, we can say that profit maximization is a subset of wealth and being a subset, it will facilitate wealth creation. As wealth creation needs a longer term; therefore emphasis should be more on wealth maximization rather than profit maximization.

2. There is a very real possibility that corporations should in certain cases deviate from profit maximization, from maximizing returns to owners, to pursue ends that are more important from a social point of view. This does not mean that corporations should abandon profit maximization altogether, in certain cases the efficiency enhancing effects of this pursuit will make them legitimate, but in other cases other interests will take precedence.

3. Social Corporate responsibility - It is term used to describe company/organization's contributions/efforts towards the society to improve it in some way. It is important in many ways as it helps the business by giving a chance to the employees to contribute towards the environment, society and country. It creates a postive impact by making your brand popular not only among your competitors but also media, other organizations and most importantly people who are your direct customers. However, it is usually difficult to judge from the outside to what extent a company takes its internal area of responsibility seriously. CSR management that is visible to the outside world is at least an indication that the internal strategy also takes moral principles into account.The internal area of responsibility encompasses all internal strategies and processes that do not reach the public but which are essential for the ethical orientation of the company.The middle area of responsibility includes all of the fields that are publicly effective and have a direct effect on the environment and society, but which are still a normal part of the working process.The external area of responsibility is for all activities that require action; for instance, if a company becomes charitably active (mostly financially) and interrupts or adapts its daily work processes.