INTRODUCTION OF MANAGERIAL ECONOMICS

What is Economics?
Economics is a social science concerned with the production, distribution, and
consumption of goods and services.
Economics studies how individuals, businesses, governments, and nations make choices
about how to allocate resources. Economics focuses on the actions of human beings, based
on assumptions that humans act with rational behavior, seeking the most optimal level of
benefit or utility.
 MACRO ECONOMICS:

 Macroeconomics analyzes overall economic issues such as employment, inflation,

productivity, interest rates, the foreign trade deficit, and the federal budget
deficit. ...
 The study of economic activity by looking at the economy as a whole.
 An example of macroeconomics is the study of U.S. employment.
MICROECONOMICS:

Microeconomics is the social science that studies the implications of incentives and
decisions, specifically about how those affect the utilization and distribution of
resources.
Microeconomics shows how and why different goods have different values, how
individuals and businesses conduct and benefit from efficient production and
exchange, and how individual’s best coordinate and cooperate with one another.
Generally speaking, microeconomics provides a more complete and detailed
understanding than macroeconomics.
MANAGERIAL ECONOMICS: MEANING & DEFINITION

• Branch of Economics: ‘Managerial Economics is the study of Economic

Theories, Principles and
Concepts which is used in Managerial Decision Making.’
• “Managerial economics is concerned with the application of economic
concepts and economic analysis to the problems of formulating rational
managerial decisions.
Definition:
“Managerial economics is the study of allocation of resources available to a firm
among the activities of that unit” - Hynes.
“Managerial economics is the application of economic principles and methodologies
to the decision making process within the firm or organization.”-Douglas.
“Managerial economics applies economic theory and methods to business and
administrative decision making.”- Pappas & Hirschey.
NATURE OF MANAGERIAL ECONOMICS:

 Art and Science:

Management theory requires a lot of critical and logical thinking and analytical skills
to make decisions or solve problems. Many economists also find it a source of
research, saying it includes applying different economic concepts, techniques and
methods to solve business problems.
 Micro Economics:
In managerial economics, managers typically deal with the problems relevant to a
single entity rather than the economy as a whole. It is therefore considered an integral
part of microeconomics.
 Uses Macro Economics:
A corporation works in an external world, i.e. it serves the consumer, which is an
important part of the economy. For this purpose, it is important that managers evaluate
the various macroeconomic factors such as market dynamics, economic changes,
government policies, etc., and their effect on the company.
 Multidisciplinary:
It uses many tools and principles that belong to different disciplines, such as accounting,
finance, statistics, mathematics, production, operational research, human resources,
marketing, etc.
 Prescriptive/Normative Discipline:
By introducing corrective steps it aims at achieving the objective and solves specific
issues or problems.
 Management Oriented:
This serves as an instrument in managers’ hands to deal effectively with
businessrelated problems and uncertainties. This also allows for setting priorities,
formulating policies, and taking successful decision-making.
 Pragmatic:

The solution to day-to-day business challenges is realistic and rational.

1. Demand Analysis and Forecasting:
• A firm relies on converting inputs into outputs and generates revenue from
them. A clear and accurate estimation of demand ensures a continuous
efficiency of the firm. Several external factors like price, income, affect the
demand that need to be analyzed.
• Upon analyzing these factors affecting the demand for a product, managers can
decide on the production. After estimating the current demands, manager’s
move ahead to predict future demands for the product. This is referred to as
demand forecasting.
2.Cost and Production Analysis:
• Cost Analysis is yet another function of Managerial economics.
• A company makes a profit in two ways: by increasing the demand or by reducing the
cost.
• The determinants of assessing costs, the connection between cost and yield, the
gauge of cost and benefit are indispensable to a firm.
3. Pricing Decisions, Policies, and Practices:

• Among the 4Ps of marketing, Price finds an important place. For any firm,
Pricing is a very important aspect of Managerial Economics as a firm's revenue
earnings largely depend on its pricing policy. However, it is a bit challenging as
other players are competing in the same price segment.
• When pricing a product is done, the costs of production are also taken into
account. Managerial Economics helps the management to go through all the
analyses and then price a product. In an oligopoly market condition, the
knowledge of pricing a product is essential.
4. Profit Management:
• A business firm is an organization designed with an intention to make profits and
profits reflect the success of a company. After all the analyses, it all rolls down to
profits.
• To maximize profits a firm needs to manage certain things like pricing, cost aspects,
resource allocation, and long-run decisions.
• This would mean that the firm should work from the very beginning, evaluate its
investment decisions and frame the best capital budgeting policies. Profit
management is considered as a difficult area of managerial economics.
5. Capital Management:
• Every asset a business owns is known as its capital. Capital management
thus becomes an important practice.
• Planning and control of capital expenditures is a basic executive function.
It involves the Equi- marginal principle
• The prime objective is to ensure the sustainable use of capital. This means
that funds should be kept at a bay when the managerial returns are less than
in other uses.
OTHER:
Resource allocation:
Scarce resources have to be used with utmost efficiency to get optimal results. These
include production programming, problem of transportation, etc.
Inventory and queuing problem:
Inventory problems involve decisions about holding of optimal levels of stocks of raw
materials and finished goods over a period. These decisions are taken by considering
demand and supply conditions. Queuing problems involve decisions about installation of
additional machines or hiring of extra labour in order to balance the business lost by not
undertaking these activities.
Investment problems:
Forward planning involves investment problems. These are problems of Allocating scarce
resources over time. For example, investing in new plants, how much to invest, sources
of funds, etc.
SIGNIFICANCE OF MANAGERIAL ECONOMICS:

 Business Planning: Managerial economics assists business organizations in

formulating plans and better decision making. It helps in analyzing the demand
and forecasting future business activities.
 Cost Control: Controlling the cost is another important role played by managerial
economics. It properly analyses and decides production activities and the cost
associated with them. Managerial economics ensure that all resources are
efficiently utilized which reduces the overall cost.
 Price Determination: Setting the right price is one of the key decisions to be taken by
every business organization. Managerial economics supplies all relevant data to
managers for deciding the right prices for products.

 Business Prediction:
Managerial economics through the application of various economic tools and theories
helps managers in predicting various future uncertainties. Timely detection of uncertainties
helps in taking all possible steps to avoid them.
 Profit Planning and Control:
Managerial economics enables in planning and managing the profit of the business. It
makes an accurate estimate of all cost and revenue which helps in earning the desired
profit.
 Inventory Management:
Proper management of inventory is a must for ensuring the continuity of business
activities. It helps in analyzing the demand and accordingly, production activities are
performed. Managers can arrange and ensure that the proper quantity of inventory is
always available within the business organization.
Manages Capital:
Managerial economics helps in taking all decisions relating to the firm’s capital. It
properly analyses investment avenues before investing any amount into it to
ensure the profitability of an investment.
Managerial Economics relationship with Other Disciplines:
Managerial Economics is closely linked with other disciplines such as economics,
accountancy, mathematics, statistics, operation research, psychology and organizational
behavior.
Economics:
Managerial Economics is the offshoot of economics and hence the concepts of managerial
economics are basically economic concepts. If economics deals with theoretical concepts,
managerial economics is the application of these in real life. In the process of addressing
various managerial problems, several empirically estimated functions such as demand
function, cost function, revenue function and so on are extensively used.
Operation Research:
Decision-making is the main focus in Operation Research and Managerial Economics. If
Managerial Economics focuses on “problems of decision making” Operation Research
Focus on solving the Managerial problems.
The Operation Research Models such as linear programming, transportation,
optimization techniques and so on, are extensively used in solving the managerial
problems.
Mathematics: Managerial Economist is concerned with estimating and predicting. The
relevant economic factors for decision-making and foreword planning. In this process, he
extensively makes use of the tools and techniques of mathematics such as algebra,
calculus, vectors; input-output tables such other.
Statistics:
Statistics deals with different techniques useful to analyze the cause and effect
relationships in a given variable or phenomenon. It also empowers the managers
to deal with the situations of risk and uncertainty through its techniques such as
probability. The business environment for the managerial economist is full of risk
and uncertainty and extensively makes use of the statistical techniques such as
averages, measures of dispersion, correlation, regression time series, and
probability and so on. These techniques enhance the relevance of the conceptual
base in managerial economics.
Accountancy:
The accountant provides accounting information relating to costs, revenues, receivables,
payables, profit and loss etc. and this forms the basis for the managerial economist to act
upon. This forms authentic source of data about the performance of the firm. The main
objective of accounting function is to record, classify and interpret the given accounting
data. The managerial economist profusely depends upon accounting data for decision-
making and foreword planning.
Psychology:
Consumer psychology is the basis on which managerial economist acts upon. How the
customers react to a given change in price or supply and its consequential effect on
demand / profits is the main focus of study in managerial economics. We assume that the
behavior of the consumer is always rational which in reality is not so. Psychology
contributes towards understanding the behavioral implications, attitude and motivations
of each of the micro economics variables such as consumer, supplier, investor, worker or
an employee.
Organizational Behavior:
Organization Behavior enables the managerial economist to study and develop
behavioral models of the firm integrating the manager is behavior with that of the owner.
This further analysis the economic rationality of the firm in a focused way.
Role of a Managerial Economist
A managerial economist helps the management by using his analytical skills and highly
developed techniques in solving complex issues of successful decision-making and future
advanced planning and assists the business planning process of a firm.
 Studies Business Environment
The managerial economist is responsible for analysing the environment in which business
operates. Proper study of all external factors that affect the functioning of organization is
must for proper functioning. He studies various factors like growth of national income,
Competition level, price trends, phases of the business cycle and economy and updates
the management regarding it from time to time.
 Analyses Operations Of Business
He analyses the internal operation of business and helps management in making better
decisions in regard to internal workings. Managerial economist through his analytical and
forecasting skills provides advice to managers for formulating policies regarding internal
operations of the business.
 Demand Forecasting and Estimation
Proper estimation and forecasting of future trends helps the business in achieving desired
profitability and growth. Managerial economist through proper study of all internal and
external forces makes successful forecasting of future uncertainties or trends.
 Production Planning
Managerial economist is responsible for scheduling all production activities of business.
He evaluates the capital budgets of organizations and accordingly helps in deciding
timing and locating of various actions.
 Economic Intelligence
He provides economic intelligence services by communicating all economic
information to management. Managerial economist keeps management always updated
of all prevailing economic trends so that they can confidently talk in seminars and
conferences.
 Performing Investment Analysis
A managerial economist analyses various investment avenues and chooses the most
appropriate one. He studies and discovers new possible fields of business for earning
better returns.
 Focuses On Earning Reasonable Profit
He assists management in earning a reasonable rate of profit on capital employed
in the business. Managerial economist monitors activities of organizations to check
whether all operations are running efficiently as per the plans and policies.
 Maintaining Better Relations
A managerial economist maintains better relations with all internal and external
individuals connected with the business. It is his duty to develop a peaceful and
cooperative environment within the organization and aims to reduce any opposition
taking place.
Basic Economic Principles
1. The Incremental Principle
2. Marginal Principle
3. Discounting Principle
4. Time Perspective Principle
5. Opportunity Cost Principle
6. Equi-Marginal Principle
7. Risk and Uncertainty principles
The Incremental Principle
• The Incremental Principle is one of the most important concepts in
managerial economics.
• It states that decision-makers should always choose the option that provides
the most incremental benefit or the option that provides the greatest
increase in benefits over the next best alternative.
• This principle is especially important when making decisions about
investments and other long-term projects. For example, if a company is
considering two different investment options, it should choose the option
that is expected to provide the highest return on investment.
 Marginal Principle
 The marginal principle is one of the essential concepts in managerial economics.
 It states that businesses should make decisions by considering each option’s marginal
benefits and marginal costs.
 In other words, businesses should compare the additional benefits of an option to its
additional costs and choose the option that provides the most benefit for the least
cost.
 This principle can be applied to various business decisions, from production and
pricing to investment and financing decisions.
 The key is to always consider each option’s incremental benefits and costs before
making a final decision.
 Opportunity Cost Principle
 The opportunity cost principle is a cornerstone of managerial economics.
 It states that decisions should be based on the opportunity cost of resources, not
just the monetary cost.
 The opportunity cost principle is relevant to both individuals and organisations.
 For individuals, it means that decisions should be based on the opportunity cost
of time and effort.
 For organisations, it means that decisions should be based on the opportunity cost
of capital and other resources.
 Discounting Principle
 The Discounting Principle is one of the essential principles of Managerial Economics.
 It states that the present value of a stream of future cash flows is always less than the
future value of those cash flows.
 This is because money has time value – it is worth more today than it will be in the
future.
 This principle is used extensively by businesses when making investment decisions, as
well as by individuals when making personal financial decisions.
 Equi-Marginal Principle
 The Equi-Marginal Principle is one of the key concepts in Managerial Economics that
shapes the decision-making process.
 It states that rational decision-makers will allocate their resources in such a way as to
maximise their utility.
 This principle is based on the assumption that the decision maker is rational and seeks
to maximise their utility.
 The utility is often thought of as happiness or satisfaction.
 So, the Equi-Marginal Principle says that rational decision-makers will use their
resources in a way as to maximise their happiness or satisfaction.
 Time Perspective Principle
 The Time Perspective Principle is a fundamental principle of managerial economics
that states that an individual’s decisions are influenced by their perceptions of time.
 This principle dictates that individuals make decisions based on their present situation,
prospects, and past experiences.
 Individuals with a positive time perspective focus on the present and future, while
those with a negative time perspective focus on the past.
 The Time Perspective Principle is essential for managers, as it can influence an
individual’s willingness to take risks and make investment decisions.
count of uncertainty with thehe
Risk and Uncertainty principles
 Managerial decisions are actions of today which bear fruits in future which is
unforeseen. Future is uncertain and involves risk.
 The uncertainty is due to unpredictable changes in the business cycle, structure of the
economy and government policies.
equires formulation of definite
 This means that the management must assume the risk of making decisions for their
institution in uncertain and unknown economic conditions in the future.

ironment.
 Firms may be uncertain about production, market prices, strategies of rivals, etc.
Under uncer­tainty, the consequences of an action are not known immediately for
certain.
FIRM AND INDUSTRY
A Firm is a commercial enterprise, a company that buys and sells goods and services to
consumers with the aim of making a profit. A business entity such as a corporation,
limited liability company, public limited company, sole proprietorship, or partnership that
has goods or services for sale is categorized as a firm.
An Industry is an economic activity concerned with the processing of raw materials and
manufacture of goods. It can also be said as a sector that produces goods or related
services within an economy
OBJECTIVES OF THE FIRM
1. Profit maximization
2. Sales maximization
3. Utility maximization
4. Increase market share/market dominance
5. Social/environmental concerns
6. Profit satisficing
7. Co-operatives
1. Profit maximization:
Considering any business that exists, they are usually concerned with
maximizing profit. Higher profit means:
• Higher dividends for shareholders.

• More profit can be used to finance research and development. Higher

profit makes the firm less vulnerable to takeover.
• Higher profit enables higher salaries for workers.
2. Sales Maximization:
 Firms often seek to increase their market share, even if it means less profit. This could
occur for various reasons:
 Increased market share increases monopoly power and may enable the firm to put up
prices and make more profit in the long run.
 Managers prefer to work for bigger companies as it leads to greater prestige and
higher salaries.
 Increasing market share may force rivals out of business.
E.g. the growth of supermarkets has led to the demise of many local shops. Some firms
may actually engage in predatory pricing which involves making a loss to force a rival
out of business.
3. Utility maximization:
It means “that managers get satisfaction from using some of the firm's potential profits for
unnecessary spending on items from which they personally benefit.” To pursue his
goal of utility maximization, the manager directs the firm's resources many ways.

4. Increase Market Share/ Market Dominance:

This is similar to sales maximization and may involve mergers and takeovers. With this
objective, the firm may be willing to make lower levels of profit in order to increase in
size and gain more market share. More market share increases its monopoly power and
ability to be a price setter.
5. Social Concern:
A firm may incur extra expense to choose products which don’t harm the environment or
products not tested on animals. Alternatively, firms may be concerned about local
community / charitable concerns.
• Some firms may adopt social/environmental concerns as part of their branding.
This can ultimately help profitability as the brand becomes more attractive to
consumers.
• Some firms may adopt social/environmental concerns on principal alone – even if
it does little to improve sales/brand image.
6. Profit Satisficing:
Profit satisficing is a situation where there is a separation of ownership and control. As a
result, the owners are likely to have different objectives to the managers and workers.
7. Co-operatives:
Co-operatives may have completely different objectives to a typical business. A
cooperative is run to maximize the welfare of all stakeholders – especially workers. Any
profit the cooperative makes will be shared amongst all members.
MANAGERIAL THEORIES OF THE FIRM:

Managerial theories of the firm place emphasis on various incentive mechanisms in

explaining the behavior of managers and the implications of this conduct for their
companies and the wider economy.
According to traditional theories, the firm is controlled by its owners and thus wishes to
maximize short run profits. The more contemporary managerial theories of the firm
examine the possibility that the firm is controlled not by its owners, but by its managers,
and therefore does not aim to maximize profits. Although profit plays an important role
in these theories as well, it is no longer seen as the sole or dominating goal of the firm.
The other possible aims might be sale revenue maximization or growth.
MANAGERIAL THEORIES OF THE FIRM
1. Baumol's Theory of Sales Revenue Maximization
2. Marris Growth Maximization Model
3. Williamson’s Managerial Discretionary Theory
1. BAUMOL'S THEORY OF SALES REVENUE MAXIMISATION:

Baumol’s Model: Baumol's theory of sales revenue maximization was created by

American economist William Jack Baumol. It's based on the theory that, once a
company has reached an acceptable level of profit for a good or service, the aim
should shift away from increasing profit to focus on increasing revenue from sales.
W.J.Baumol suggested Sales Revenue maximization as an alternative goal to profit
maximization. Managers only ensure acceptable level of profit, pursuing a goal which
enhances their own utility.
 Assumption of the Theory:

1. There is a single period time horizon of the firm.

2. The firm aims at maximizing its total sales revenue in the long run subject to a profit
constraint.

3. The firm’s minimum profit constraint is set competitively in terms of the current
market value of its shares.
4. The firm is oligopolistic whose cost curves are U-shaped and the demand curve is
downward sloping. Its total cost and revenue curves are also of the conventional type.
 ARGUMENTS IN FAVOUR OF MAXIMISATION OF SALES GOAL:

Baumol’s argument to justify sales revenue importance.

1. If the sales of a firm are declining then the banks, creditors and the capital
market are not prepared to provide finance to the firm anymore.
2. Its own distributors and dealers might stop showing interest on the firm’s
product in future.

3. Consumers might not buy its product because of its unpopularity and there is
a more chance of competitors acquiring the consumers.
4. Firm reduces its managerial and other staff with fall in sales.

5. But if firm’s sales are large, there are economies of scale and the firm expands and
earns large profits.

6. Salaries of workers and management also depend to a large extent on more sales and the
firm gives them bonus and other facilities.
Conclusion: This theory states that the sales maximization is to increase the total
revenue by money where, Sales can increase up to the point of profit maximization
where the marginal cost equals marginal revenue. If sales are increased beyond this point
money sales may increase at the expense of profits.
2. Marris's Growth Maximization Model:
 Robin Marris in his book The Economic Theory of Managerial Capitalism Theory of
Managerial Capitalism (1964) has developed a dynamic balanced growth
maximising theory of the firm.
 He concentrates on the proposition that modern big firms are managed by managers
and the shareholders are the owners who decide about the management of the firms.
 The managers aim at the maximisation of the growth rate of the firm and the
shareholders aim at the maximisation of their dividends and share prices.
 To establish a link between such a growth rate and the share prices of the firm,
Marris develops a balanced growth model manager chooses a constant growth rate at
which the firm's sales, profits, assets, etc., grow
In Corporate firms, there is structural division of ownership and management which
allows managers to set goals which do not necessarily conform with those of the owners.
in which theThe shareholders are the owners. Their utility function includes variables such
as
• Profits,
• Size of output,
• Size of capital,
• Market share and
• Public image.
The Managers have other ideas. Their utility functions are:
• Salaries
• Job security,
• Power and status.
The Marris's model is based on the following assumptions:
• The objective of the firm is to maximise its balanced growth rate.
• The Growth itself depends on two factors: First, the rate of growth of demand for the
firm's product- GD; and second, the rate of growth of capital supply - GS.
• All major variables such as profits, sales and costs are assumed to increase at the same
rate
Conclusion:
• Thus the manager of a firm aims at maximising his utility, and his utility depends upon
the rate of growth of the firm.
• Though promoting the growth of the firm is the main aim of the manager, yet he is also
motivated by his job security. The manager's job security depends upon the satisfaction
of shareholders who are concerned to keep the firm's share prices and dividends as high
as possible.
• Thus the manager aims at maximising the rate of growth of the firm and the
shareholders (owners) aim at maximising their profits in the form of dividends and
share prices. Marris analyses the means by which the firm tries to achieve its growth-
maximisation goal.
3. WILLIAMSON’S MANAGERIAL DISCRETIONARY THEORY:

• Oliver E. Williamson found (1964) that profit maximization would not be the
objective of the managers of a company.

• This theory assumes that utility maximization is a manager’s sole objective. However
it is only in a corporate form of business organization that a self-interest seeking
manager Maximize his/her own utility, since there exists a separation of ownership
and control.

• The managers can use their ‘discretion’ to frame and execute policies which would
maximize their own utilities rather than maximizing the shareholders’ utilities.
• This is essentially the principal–agent problem. This could however threaten their job
security, if a minimum level of profit is not attained by the firm to distribute among the
shareholders.

Managerial utility function:

The managerial utility function includes variables such as salary, job security, power,
status, dominance, prestige and professional excellence of managers
The basic assumptions of the model are:
• Imperfect competition in the markets.
• Divorce of ownership and management.
• A minimum profit constraint exists for the firms to be able to pay dividends to their
shareholders.
Arguments:
• In the Williamson theory or model argues that managers have discretion in pursuing
policies which maximize their own utility rather than attempting the maximization of
profits which maximizes the utility of owner and shareholders.
• Profit acts as a constraint to this managerial behavior in that the financial market and
the Shareholders require a minimum profit to be paid out in the form of dividends,
otherwise the job Security of managers is endangered.
• In this theory Williamson considered the two important factors namely, staff
expenditures on emoluments (slack payments), and funds available for discretionary
investment give to managers a positive satisfaction (utility) because these expenditures
are a source of security and reflect the power, status, prestige and professional
achievement of managers.
• Being the head of a large staff is a symbol of power, status and prestige, as well as a
measure of Professional success, because a progressive and increasing staff implies
successful expansion of the particular activity for which a manager is responsible
within a firm.
U= f( S, M, πd )
S( Staff expenditure )= It includes salaries and other monetary benefits
M( Managerial emoluments) = It includes benefits to managers like expensive and
luxury offices, cars since it increases managers status, prestige
πd ( Discretionery profits) = Income available to business activities after covering all
expenses including salaries. Rent, taxes and dividends
4. Cyert-March Hypothesis of Satisfying Behavior
 Cyert-March hypothesis is an extension of Simon’s hypothesis of firms’
satisfying behavior.
 Simon had argued that the real business world is full of uncertainties. Accurate and
adequate data are not readily available.
 If data are available, managers have little time and ability to process them.
Managers also work under a number of constraints. Under such conditions it is not
possible for the firms to act in terms of consistency assumed under
profit maximization hypothesis. Nor do the firms seek to maximize sales and
growth. Instead they seek to achieve a satisfactory profit or a satisfactory growth and
so on. This behavior of business firms is termed as satisfaction behavior.
 Cyert and March added that, apart from dealing with uncertainty, managers need to
satisfy a variety of groups of people such as managerial staff, labor, shareholders,
customers, financiers, input suppliers, accountants, lawyers, etc.
 All these groups have conflicting interests in the business firms. The manager’s
responsibility is to satisfy all of them.
 According to the Cyert-March, “firm’s behavior is satisfying behavior which implies
satisfying various interest groups by sacrificing firm’s interest or objectives.”
 The basic assumption of satisfying behavior is that a firm is an association of
different groups related to various activities of the firms such as shareholders,
managers, workers, input supplier, customers, bankers, tax authorities, and so
on.
 All these groups have some expectations from the firm, which are needed to be
satisfied by the business firms.
 In order to clear up the conflicting interests and goals, managers form an
objective level of the firm by taking into consideration goals such as production,
sales and market, inventory and profit.
 These goals and objective level are set on the basis of the managers past experience
and their assessment of the future market conditions.
 The objective level is also modified and revised on the basis of achievements and
changing business environment.
5. Rothschild’s Hypothesis of Long-Run Survival and Market Share Goals

 Rothschild suggested another alternative objective and alternative to

profit maximization to a business firm.
 According to Rothschild, the primary goal of the firm is long-run survival.
 Some other economists have suggested that attainment and retention of a market
share constantly, is an additional objective of the business firms.
 The managers, therefore, seek to secure their market share and long-run survival.
The firms may seek to maximize their profit in the long run though it is not certain.
 The evidence related to the firms to maximize their profits in the long run, is not
certain.
 Some economists argue that if management is kept separate from the ownership, the
possibility of profit maximization is reduced.
 This means that only those firms with the objective of profit maximization can
survive in the long run.
 A business firm can achieve all other subsidiary goals easily by maximizing its
profits. The motive of business firms behind entry-prevention is also to secure a
constant share in the market.
 Securing constant market share also favors the main objective of business firms of
profit maximization.