Profit maximisation as a goal of a business firm is assumed to be the most rational and fundamental objective. Since, the entrepreneur is believed to be inspired by the business or commercial motive, profit maximisation is regarded as his sole objective in economic theory it is assumed that the entrepreneur or a firm behaves rationally and the concept of rationality in this context means that the entrepreneur strives to maximize, his profits. Thus, every firm tries to achieve that level of output where it makes the maximum possible profits.
However, there is no reason to believe that all the business firms pursue the same objective of profit maximisation. Small firm run by the owner may seek to earn reasonable level of profits and allow sufficient time for him to relax and pursue other socio – cultural activities. There is no dearth of cases where the over worked business executives turn down many attractive profit making propositions because they want to have some free time for other pursuits. Many economists argue that finding out the profit maximizing level of output involves a cumbersome process of trial and error through variations in level of production. The business firms do not want to undertake this risky experimentation due to the fear that in this process they may unnecessarily add to their costs and lose their customers.
SUBMIT ASSIGNMENT NOW!