Objectives of Firms

• Profit is generated by producing at the point where marginal cost equals marginal revenue.
• Short run profit maximization assumes firms try to maximize profit for every single action that they take.
• Long run profit maximization assumes that sometimes firms sacrifice profits in the short run in order to achieve better profits in the long run.
• The principal agent problem arises when there is a divorce of ownership from control.
• Managers might pursue a policy of satisficing instead of profit maximization.
• Firms might have objectives other than profit maximization, such as revenue maximization, sales maximization, or social goals.

The main objective of firms is profit maximization, achieved when marginal cost equals marginal revenue. However, firms may have other objectives such as revenue maximization, sales maximization, or social responsibility. The market structure within which a firm operates is determined by characteristics such as the number of firms, ease of entry, and control over price. The principal-agent problem may arise when ownership is divorced from control, leading to managers pursuing objectives other than profit maximization. Short-run profit maximization assumes firms maximize profit for every action, while long-run profit maximization may involve sacrificing short-term profits for long-term gains.