3.2 - reasons firms don't act as profit maximisers (objectives of economic agents)

reasons firms may not act as profit maximisers: survival

• if theres a recession/firm is new, focus is on survival, not profits.

• recessions lead to low income, low consumption, and demand falls

reasons firms may not act as profit maximisers: other managerial objectives

• objectives apart from profit

• sales revenue maximisation (increased long term profit, controlling market/monopoly,

• sales volume maximisation (if you’re a manager paid in amount of sales)

reasons firms may not act as profit maximisers: lack of information

• market constantly changes (costs, preferances, prices, etc)

• firms must change in response

• but this needs research (takes time)

• difficult to make demand forecasts

reasons firms may not act as profit maximisers: lifestyle

• e.g. small bookshops, coffee shops, etc

• just for fun, not profit

reasons firms may not act as profit maximisers: profit satisficing

• making enough profit (not the most)

• meet profit expectations of SHs/owners (paying dividends)

reasons firms may not act as profit maximisers: social objectives

• some care about reputation

• shares are open to pblic

• in terms of profit, firms shouldn’t focus on the environment/public

• e.g. body shop only uses sustainable materials even though this may be more expensive

reasons firms may not act as profit maximisers: loss aversion

• stay away from making a decision in the future

• if firms have made similar decisions and its lead to loss

• avoiding risk of failure (but avoiding risk also decreases profit)