Firms may aim for survival, profit maximisation, growth or social welfare, and these aims can conflict.
Survival: new firms, and firms in a recession, may simply aim to stay in business. They may accept low or no profit for a time, keeping prices low to hold on to customers.
Profit maximisation: many private firms aim to make as much profit as possible. Profit rewards owners for risk and funds investment.
Growth: some firms aim to become larger, increasing sales and market share. Bigger firms can gain economies of scale and more market power. Growth may mean lower prices and lower profit in the short run.
Social welfare: some firms aim to benefit society, such as social enterprises that employ disadvantaged workers or charities that sell goods. Many public sector organisations aim at welfare rather than profit.
- Survival
- Staying in business; common for new firms and in recessions.
- Profit maximisation
- Making as much profit as possible.
- Growth
- Increasing size, sales and market share.
- Social welfare
- Benefiting society, as social enterprises do.
Worked example: Objectives can change
Follow one coffee chain over ten years.
- Year 1: survival. It opens one shop and keeps prices low to build a customer base.
- Years 3 to 6: growth. It opens 30 outlets, accepting thin profits to win market share.
- Year 10: profit maximisation. It now has a strong brand and raises prices.
- It also runs a programme hiring workers with disabilities, showing a social welfare aim alongside profit.
Watch out for this
All firms aim to maximise profit all the time.
Many firms put survival or growth first, especially when young or in a downturn. Social enterprises and public sector bodies may aim mainly at social welfare.
Check your understanding
A firm cuts its prices to win customers from rivals, accepting lower profit this year. Which objective is it most likely pursuing?
- Growth
- Profit maximisation
- Social welfare