The “stockholder view” put forward by Milton Friedman holds that managers should always seek to maximize profits. Proponents of this view make the utilitarian claim that maximizing profits will promote the general welfare. How, according to this view, will maximizing profits promote the general welfare? Do you agree or disagree with Friedman? Explain why.
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Importance Of Profit Maximization
Supply and Demand, Export and Import and Discount and Scarcity, are just among the terms that being used in modern day business transaction. The basic concept of trading on early age have been organized and systematized in order to have an ideal flow of how can business be observed and regulated because goal of every business is to have a significant increase and be able to sustain. The significant increase can be quantified through measure the increase in revenue, growth in production and less of expenses, but basically the expansion of business and growth is all rooted down to a certain cycle called profit maximization.
Profit maximization, from the word itself profit and maximization, is a concept in economics that deal on determining the price and output level in order to have the most optimal return of the profit. This could be a short or long run depends on the market situation. Since the market have various trend it is important for business people to have a grasp on the situation, for example a certain product can be called “in trend” for a length of month thus can be sources of sales but the business people have to compute and study on how much capital can they give and how much would be the return. This scenario inhibits the call for profit maximization because the business people have to establish the best possible price with regards to the number of their output. Hence, it is important for people under the business sector to understand the current situation of the market to be able to cope up and proceed on profit maximization. Generally, the profit maximization is held important goal for a company because of various reasons; 1) When profit is maximized there is a high revenue which can be used for business expansion. And business expansions for owners means a higher potential on generating income, and for the society it would be able to have an increase in employment that can create a cycle of business foundation and personnel recruitment. 2) Also, the monetary gains in profit maximization can be used in order to be able to have a proper and regular maintenance for facilities, equipment and machineries involve in the business. Having a good maintenance on the site can be as productive as investment since it diminish the possible threat of down time and of hazardous situation on workers. Moreover, when a certain machine or equipment is already considered in need of consolidation, the same monetary gain can be used in purchasing another machine may it be branded or second-hand that can be used as an alternative on production type business. 3) The profit maximization can also answer the demand salary raise and bonus for the employee. Since most of business, if not all, are run by many people involve that are called employee and it is very crucial to make an effort on giving merits for their hard work. Bonuses and raise on their salary can be taken from the improved price maximization, and this step can increase the satisfaction and productivity rate of the members of the companies. Plus, it is been said that a satisfied employee can stay longer and be loyal towards the company.
In the business sector, it is very necessary that business people understand how the system works and be able to ride that system. Profit maximization is the core goal of every business that can be considered to be as an objective of financial management. This happens in basic idea, when profit is being maximized in terms of prices or the losses are being cut that a certain equation of highest possible income can be attained.