Do you believe profit maximization is a valid goal for a company and why?

Expert Solution

profit maximization can be a goal for the company because any business or firm started always seeks its benefits and focuses on how to earn more. But I think the more prior goal of the company should be the wealth maximization as it increases the shareholders wealth and subsequently the value of company is increased as compared to its competitor. Another thing is that profit maximization mainly focuses on the short term earnings of the company whereas the wealth maximization focuses on increasing the value of entire business over the long horizon.

So, I think that wealth maximization should be the goal of the company prior to profit maximization. One more point I want to add here is that in profit maximization company management go for the high risk and in order to minimize the cost and expenditure proper hedging is avoided which can have negative effects over a period of time. And in case of wealth maximization proper measures are taken to mitigate the risk exposure of the company.

jeff jeffy answered 1 year ago

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