7.2 Profit Maximization
The managers of all types of firms pursue goals. Managers of government agencies, charitable organizations, and other nonprofit organizations are supposed to take actions that benefit specific groups of people. We assume that most owners of private-sector firms want to maximize their profits, which is the reason why private-sector firms are called for-profit businesses. However, managers may not share the owners’ objective—particularly if their compensation is not tied closely to the firm’s profit.
In this section, we discuss how a firm maximizes its profit. In the next section, we discuss the factors that might lead the manager of a firm to pursue another objective, along with some of the methods that owners use to ensure ...
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