All firms, in the end, are run to make the most profit they can Essay

All firms, in the end, are run to make the most profit they can - Essay Example According to Primeaux and Stieber (1994), it is the ethical mandate of a business to try and achieve maximum profit. They argue that good business and good ethics are synonymous and that ethics and business are intricately linked. According to them, there are certain rules of business, which every business must follow. Profit maximization is one such rule and hence it is the ethical duty of a business to follow it. According to the economics theory of profit maximization, a firm should increase its output until its marginal revenue is equal to its marginal cost. Marginal revenue is the extra revenue that an additional unit of product would bring in. Marginal cost is the rise in cost that producing this additional unit would result in. A firm cannot indefinitely go on increasing its output. Initially, even at zero output, the firm would incur certain costs, such as cost of equipment, maintenance and rent. As the number of units produced increases, the cost goes up. However, at a certain level of output, the revenue from these goods starts to go down. Hence, maximum profit is obtained at the point where marginal revenue is equal to marginal cost. Coming back to different types of businesses, let us explore why profit maximization is a must for them irrespective of their operating conditions. Let us consider the case of a firm operating in a monopolistic market.... Let us take the case of not-for-profit (NPO) organization. It is goal of such a firm to work for the benefit of the society. However, this requires money. Many NPOs rely on external source of funding such as government funds, grants and charities. However, these sources of income are neither reliable nor predictable. Hence, the organization must use whatever funds it has judiciously so that they can make the money last as long as possible. This is only possible by following the principle of profit maximization. So even though explicitly, the firms aim is not to make profit, it must, in the end, adopt profit maximization techniques in order to remain in business and achieve its stated goals. Similarly, a cooperative would want to maximize profits so as to achieve enough surpluses over its costs so that all its members can achieve some income. This is important, because the members of a cooperative need some incentive to remain in the cooperative other than for the good of the society. Even if all the members of a cooperative are willing to forego personal income, the firm would still need to make profits so as to have some operating cash at hand. In a private firm, the entire liability of the business is on the owner or the joint owners. Since, in such a firm, there are only a limited number of owners, all of whom may be either related to one another or known to each, the liability shared by these shareholders or owners becomes unlimited. Hence, if the business goes bankrupt, all the shareholders would suffer. If this firm has sole proprietorship, then the risk is even greater.