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    Firm's Objectives

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    tanatswagendere1

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    © All Rights Reserved
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    Firm's Objectives

    Uploaded by

    tanatswagendere1
    7 views2 pages

    Original Title

    Firm's objectives

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    © © All Rights Reserved

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    Copyright:

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    Download as rtf, pdf, or txt
    7 views2 pages

    Firm's Objectives

    Uploaded by

    tanatswagendere1

    Copyright:

    © All Rights Reserved
    Download as RTF, PDF, TXT or read online from Scribd
    Download as rtf, pdf, or txt
    of 2

    Sure, let's break this down:

    **Objectives of a Firm:**

    Firms have multiple objectives, and while these can vary greatly depending on the specific firm and
    industry, some common objectives include¹²³:

    1. **Profit Maximisation**: This is often the primary objective in conventional theory. The firm seeks to
    generate the maximum possible profit given its production costs and the demand for its products.

    2. **Sales Maximisation**: Some firms aim to maximise their total sales revenue, rather than profits.
    This could be to increase market share or to cover fixed costs.

    3. **Growth Maximisation**: Firms may aim to maximise their growth, either in terms of sales, assets,
    or another measure. This can increase the firm's market power and provide benefits like economies of
    scale.

    4. **Satisfaction Maximisation**: Some firms aim to maximise the satisfaction of various stakeholders,
    including employees, customers, and the community.

    5. **Multiple Objectives**: Many modern corporations are motivated by a combination of objectives,


    which can include everything from profit maximisation to social responsibility.

    **Principal-Agent Problem:**

    The principal-agent problem refers to a situation where an agent (who is making decisions and taking
    actions) and a principal (on whose behalf the agent is acting) have different goals and asymmetric
    information⁵⁶⁷.

    This problem arises when the agent, who has more information, does not act in the best interest of the
    principal. For example, managers (agents) might make decisions that benefit themselves rather than the
    shareholders (principals).
    Solutions to the principal-agent problem often involve mechanisms to align the interests of the agent
    with those of the principal. This could include performance-based incentives, monitoring, contracts that
    stipulate certain behaviors or outcomes, and improving the flow of information between principal and
    agent⁵⁶⁷.

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