BUSINESS ANALYTICS AND ECONOMETRICS
When firms are analyzed based on the standard economics assumption, it is believed that the core purpose of the firms is to maximize the profits. Profit maximization is a vast phenomenon which includes: earning more profit for the research and development of the firm; more dividends available to be paid for the shareholders; higher salaries for the workers and lesser chances of takeover of the firm. When devising the objective of the firm, it is imperative to take into consideration all the interests of the stakeholders which is not only the owner but also the employees, the shareholders, the society, the government and so on (Lambertini, 2009). So, the main purpose is on maximizing the profits so that all the stakeholders would benefit in the long run.
In order to make high profits, it is also important to increase the market share of the firm; this can sometimes be associated with less profit in the short run. When the share of firm increases in the market, the ability to achieve monopoly power increases which means that the firm can put up its own prices and earn higher profits in the long run. It is also the aim of the business to drive the rivals out of business and for this purpose it is important to grab larger share of the market (Spulber, 2009); with this, the employees and the management also gets higher salaries and so the level of expenditure and consumption also improves in the economy.
Further, when forming objectives of the firms, the aim is also to ensure that the shareholders value is maximized; the shareholders would obviously invest when they are earning higher value and so the tactics and strategies must be formulated according to this factor.
But one of the most critical aspects which have specially been come to light is the environmental concern of the firms; the concern for the local community and charity in the society is also influencing the objectives of the firms. The firms need to devise strategies that are beneficial for the society, the environment and the general public as the people demand socially responsible attitude from the businesses (Lambertini, 2009). Though, sometimes, firms have to incur extra expenses to fulfill this purpose, but the fact is that it earns them more respect and goodwill in the society. The people seem to get attracted by such firms as they are believed to sacrifice their profits for the benefit of the society. This actually leads to more sales for the business and eventually more profits and more shares in the market for the firm (Spulber, 2009).
The contents of chapter one all are interrelated in the sense that each one influences and leads to another factor. When firms devise their objectives, all these factors are inherent and define how the strategies and tactics must be identified and what objectives to pursue for the business. Based on the economic theory, all these factors point out to how the objectives of any firm are defined and for what purpose the business is working.
Lambertini, L. (2009). Firms' objectives and internal organization in a global economy. New York: Palgrave Macmillan.
Spulber, D. F. (2009). The theory of the firm. Cambridge: Cambridge University Press.