Profit maximization is the most popular hypothesis in economic analysis, but there are many other important objectives, which are not to be avoided by any firm. Modem business firms pursue multiple objectives.
An important aspect of profit is its use in measuring and controlling performances of the individuals of the large business firms. Researches have concluded that the business individuals of middle and top management often deviate from profit objective and try to maximize their own utility functions. They give importance to job security, personal ambitions for promotion, larger perks, etc. But this often conflicts with firms profit-making objective.
The reasons for conflicts are as follows:
- More energy is spent in expanding sales volume and product lines than in raising profitability.