Adopting a simple profit-maximising perspective ..... can have Essay

Adopting a simple profit-maximising perspective ..... can have positive impacts for a firm ..... Discuss - Essay Example Business owners or the management are deemed to focus on maximizing profit in the short-run. Adopting simple profit optimization perspective can have positive results on a firm. This study will explore this assertion with a view to examine the positive impacts of profit optimization. Consideration will also be given to other views that suggest other perspectives that managerial decisions should consider. In today’s market, optimization of profits has gained a wider approach encompassing the consideration of uncertainty of time and value of money. This has added to the initial approach of firm theory arguing that the long-term goal of a firm is to maximize its value. Value of a firm is deemed as the present value, which is given by the expected cash flows. For simplicity, the expected cash flows are equated to profit and the present value is thus given as the value of all the profits or the cash flows, which is discounted at the selected interest rate (Keown, 2003, p. 5). Discounting is done to incorporate the uncertainty of time and value of money in the future. This study will explore the profit optimization perspective and its positive impacts, constraints faced by managerial decisions in their pursuit to optimize profits as well as the best perspective that managers should hold in the management of a firm. Profit optimization is a short-run process that involves determining of price and output levels that gives the highest returns in form of profit. As mentioned by Hirschey (2008, p. 38), the level of activity that maximizes profit in a firm is given at the point where marginal revenue (MR) and the marginal cost (MC) are equal such that any further generation of revenue results offsets cost. A simple focus on profit maximization implies that a firm is simply focused on making profits and the resources are utilized with the sole aim of getting the highest level of profits