ECONOMIC OBJECTIVE

 Economic Objectives:

•  The profit maximising behaviour of the firm has been the most basic assumption made by economists over the last more than two hundred years and is still at the heart of neo classical micro economic theory. This assumption is simple, rational and quantitative and is amenable to equilibrium analysis. Under this assumption, the firm determines the price and output policy in such a way as to maximize profits within the constraints imposed upon it such as technology, finance etc.
•  The investors expect that their company will earn suflcient profits in order to ensure fair dividends to them and to improve the prices of their stocks. Not only investors but creditors and employees are also interested in a profitable enterprise. Creditors will be reluctant to lend money to an enterprise which is not making profits. 
• Similarly, any increase in salaries, wages and perquisite of employees can come only out of profits.The definition of profits in Economics is diuerent from the accountants’ definition of profits. Profit, in the accounting sense, is the diuerence between total revenue and total costs of the firm.
•  Economic profit is the diuerence between total revenue and total costs, but total costs here costs include both explicit and implicit costs. Accounting profit considers only explicit costs while economic profit reflects explicit and implicit costs i.e. the cost of self owned factors used by the entrepreneur in his own business. Since economic profit includes these opportunity costs associated with self owned factors, it is generally lower than the accounting profit. 
• When the economist speaks of profits, he means profits after taking into account the capital and labour provided by the owners i.e. he diuerentiates between normal profits and super normal profits. Normal profits include normal rate of return on capital invested by the entrepreneur, remuneration for the labour and the reward for risk bearing function of the entrepreneur. Normal profit (zero economic profit) is a component of costs and therefore what a business owner considers as the minimum necessary to continue in the business. Supernormal profit, also called economic profit or abnormal profit is over and above normal profits. It is earned when total revenue is greater than the total costs. Total costs in this case include a reward to all the factors, including normal profit.
• The profit maximisation objective has been subject to severe criticism in recent years. Many economists have pointed out that all firms do not aim to maximise profits. Some firms try to achieve security, subject to reasonable level of profits. 
• H A Simon argues that firms have ‘satisficing’ behaviour and strive for profits that are satisfactory. Baumol’s theory of sales maximisation holds that sales revenue maximisation rather than profit maximisation is the ultimate goal of the business firms. He cites empirical evidence for his hypothesis that sales rank ahead of profits as the main objective of the enterprise. He asserts that it is quite a common experience that when an executive is asked about his business, he will answer that his sales have been increasing (or decreasing) and talks about profits only as an afterthought.
•  He, however, points out that in their attempt to maximise sales, businessmen do not completely ignore costs incurred on output and profits to be made. 
• In 1932, A. A. Berle and G.C. Means pointed out that in large business corporations, management is separated from ownership and therefore the managers enjoy discretionary powers to set goals of the firm they manage. Williamson’s model of maximisation of managerial utility function is an important contribution to managerial theory of firms’ behaviour. 
• The owners (shareholders) of joint stock companies prefer profit maximisation; but managers maximise their own utility function subject to a minimum profit, rather than maximising profit. 
• The objective of utility maximization has been discussed in the context of two types of firms: First in case of firms owned and managed by the entrepreneur himself, utility maximisation implies that in choosing an output level, the entrepreneur owner considers not only the money profits which he will make, but also the sacrifice of leisure which he would have to make in doing the necessary activity for producing that level of output.
•  Second, in case of large joint stock companies, the utility function of managers or executives of these companies includes not only the profits which they earn for the shareholders but also the promotion of sales, maintaining lavish oflces, seeking to have a larger member of stau under their supervision etc. 
• In this case, the manager will maximise his utility by attaining a best combination of profits and the above mentioned other objectives. Cyert and March suggests four possible functional goals in addition to profit goal namely, production goal, inventory goal, sales goal and market share goal.

Goods and Service Tax Book (Updated upto 20th January 2018)

GST Student friendly Book most relevant/Useful for CA Intermediate/IPCC, CS executive , CWA Intermediate and CA final. 

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GST (Goods and Services Tax) Book -A student friendly Book. - Bharat Gurukul

GST Student friendly Book most relevant/Useful for CA Intermediate/IPCC, CS executive , CWA Inte