Question

Economists generally assume that firms attempt to maximize profits. Business people often protest that they do not just seek profits but also have other goals for their firms.

a. Is the assumption of profit maximization realistic? 


b. What might be the goals of managers of firms?


 c. Assume for now that not all business people seek to maximize profits. Does this mean 
the assumption of profit maximization should be discarded? Why or why not? 


Answer 1

a. No. Profit maximization by firms is not realistic.Economists like Milton Friedman and Theodore Levitt have argued that profit-making is the only goal of a business. A business has responsiblity to its shareholders only.

b. Economists like Keith Davis have stated that Corporate Social Responsibility (CSR) is an important goal of a business. Responsibility to society is important and will serve the corporation in the long run.

c.No. Profit maximization goal should not be discarded as it is the primary reason why a business comes into existence. It is necessary that the responsibility to society should not be ignored.