This document defines key concepts related to firms and market forces. It begins by defining a firm as an economic unit that produces goods and services for sale. The main goals or objectives of firms are then outlined as economic, social, human, national, organizational, and global objectives. Key concepts like profit maximization, wealth maximization, decision making, decision making under uncertainty, strategic vs tactical decisions, game theory, and linear programming are then defined.

1. UNIT: 5 Market Forces
Ms.Swathi J
Assistant professor
PES Institute of Advanced Management
Studies, Shivamogga

2. Meaning:
• Meaning:
• A firm is an organization which sells or
produces something or which provides a
service which people pay for.
• A commercial organization that operates on a
for-profit basis and participates in selling
goods or services to consumers.

4. Definition of Firm:
According to E. Mansfield “ firm is a unit that
produces goods and services for sale”
• Economic unit
• Part of the industry
• Organization which convert input into output
which generate income.
• Firm is a unit or entity which carrying a
portion of the business and center of control.
• It create utility

5. Goals or objective of firm:
Objectives represent the purpose for which an organization
has been started. Objectives guide and govern the actions and
behavior of businessmen.
1. Economic objective
Economic objectives of business refer to the
objective of earning profit and also other
objectives that are necessary to be pursued to
achieve the profit objective, which include,
creation of customers, regular innovations
and best possible use of available resources.

6. Economic objectives are:
• Profit maximization
• Sales maximization: Produce much revenue as
possible in the short time frame.
• Cost minimization: By using resources in best
possible manner by technology, minimum
wastage, recycle etc.
• Creation of customers: By providing quality
goods at reasonable price for both existing and
new customers.

7. Economic objectives are:
• Regular Innovation: Bring improvement and
changes in the product leads to reduction of
cost.
• Optimum utilization of resources: For business
fund or capital is pre-requisites.
• Dealing with competitors: Increasing market
share.

8. 2.Social objective:
Social objective are those objectives of business,
which are desired to be achieved for the benefit of the
society. Since business operates in a society by
utilizing its scarce resources, the society expects
something in return for its welfare. No activity of the
business should be aimed at giving any kind of
trouble to the society.

9. Social objectives are:
• Production and Supply of Quality Goods and Services:
Providing goods to customer at right time at right place.
• Adoption of Fair Trade Practices: Black market and
misleading advertisement are considered as
undesirable.
Eg: Volks Wagen – Environmental friendly diesel cars
Red Bull- give you wings
• Contribution to the General Welfare of the Society
• Providing employment

10. 3. Human objective
Human objectives refer to the objectives aimed at the
well-being as well as fulfillment of expectations of
employees as also of people who are disabled,
handicapped and deprived of proper education and
training. The human objectives of business may thus
include economic well-being of the employees, social
and psychological satisfaction of employees and
development of human resources.

11. Human objective are:
• Economic Well-being of the Employees: By
providing facilities like PF, pension, housing
facilities, medical facilities.
• Social and Psychological Satisfaction of
Employees: By putting right person to the right
job and through employee grievances.
• Development of Human Resources: By T&D,
caring and sharing information between the
employees and management.

12. Human objective are:
• Well-being of Socially and Economically
Backward People: Arrangement to improve
earning capacity of backward people and
employment to physically and mentally
challenged persons.
• Workers participation

13. 4. National objective:
In every business must have the objective of
fulfilling national goals and aspirations.
• Creation of Employment: By establishment of
new business unit, expanding market, widening
distribution channel etc
• Promotion of Social Justice: Equal opportunity to
all the employees to work and progress.
• Production According to National Priority: based
on plan and policies of government.
Eg: ISO, MRP

14. National objective
• Contribute to the Revenue of the Country: By
paying regular tax.
• Self-sufficiency and Export Promotion: By SSI
and entrepreneurial activity.

15. 5. Organizational objective
These objectives are essential for the growth and
strengthen itself in the market or in the economy.
Organizational objectives are:
• Business growth: By adding value both internally
and externally.
• Wealth maximization: By increasing net worth of
the company.
• Staff maximization: By providing freedom to
employees.
• Long run sustainability: In terms of brand name,
good will

16. 6. Global Objectives
Goods produced in one country are readily
available in other countries. So, to face the
competition in the global market every
business has certain objectives in mind, which
may be called the global objectives.

17. Global Objectives are:
• Raise General Standard of Living
• Reduce Disparities among Nations
• Make Available Globally Competitive Goods
and Services

18. Profit maximization
Meaning:
• A process that companies undergo to determine the
best output and price levels in order to maximize
its return.
• It is a amount of money received by the firm after
meeting all the cost and payments.

19. Features of Profit Maximization:
• Test of economic efficiency
• Efficient allocation of resources
• Ensure social welfare
• Leads to exploiting consumers and workers
• Reduces the risk of the business
• Primary measure for success of the firm

20. Wealth maximization:
• Wealth maximization is the concept of
increasing the value of a business in order to
increase the value of the shares held by
stockholders.
• It is a superior goal compared to
profit maximization.

21. Wealth maximization

22. Features of Wealth Maximization
• Protect the interest of the shareholders
• Provide security to the financial lenders.
• Protect interest and welfare of the workers
• Helps to achieve the economic and social
welfare.
• Helps to survive for the long period of time.

24. Difference between PM & WM
PROFIT MAXIMIZATION WEALTH MAXIMIZATION
Objective is to create difference between
cost of production and SP
Objective is to increase the EPS
It emphasizes for short term It emphasizes for long term
Included in mission statement of the firm Included in vision statement of the firm
Focus on increases profit Focus on Increase wealth of SH
Concentrate on quality and quantity Concentrate on goodwill
Need not to consider time value of money Need to consider time value of money
Important for survival and existence Important for growth and sustainability
Ignore risk and uncertainty Continuously analyze the risk factor
It does not consider dividend policy It consider dividend policy
Traditional approach Modern approach
PM id subset of wealth maximization WM is not a subset of PM

25. DECISION MAKING
DM is a process of selecting the best out of many
alternatives that are open to the management.
• DM implies choice
• Continues activity
• Intellectual activity
• Goal oriented
• Time consuming
• Pervasive process.

26. DECISION MAKING
Henry Sisk and Cliffton Williams defined “A
decision is the election of a course of action
from two or more alternatives; the decision
making process is a sequence of steps leading
lo I hat selection.”

27. Process of decision making

28. Decision making under uncertainty
• A decision problem, where a decision-maker is
aware of various possible states of nature but
has insufficient information to assign any
probabilities of occurrence to them, is termed
as decision-making under uncertainty.
• A decision under uncertainty is when there
are many unknowns and no possibility of
knowing what could occur in the future to
alter the outcome of a decision.

29. Decision making under uncertainty
• Conditions of uncertainty exist when the
future environment is unpredictable and
everything is in a state of flux.
• The decision-maker is not aware of all
available alternatives, the risks associated
with each, and the consequences of each
alternative or their probabilities.

30. Strategic decisions
• Strategic decisions are major choices of
actions and influence whole or a major part of
business enterprise.
• They contribute directly to the achievement of
common goals of the enterprise.
• They have long-term implications on the
business enterprise.
Eg: To have 100% customer satisfaction
Increase market share

31. Tactical decisions
• These decisions relate to the implementation of
strategic decisions.
• They are directed towards developing divisional plans,
structuring workflows, establishing distribution chan-
nels, acquisition of resources such as men, materials
and money.
• These decisions are taken at the middle level of
management.
 Eg: Let’s offer a 20% discount to get more sales this
month.
Renaming of business
Increase number of employees to cope up with
workload

32. Strategic and Tactical Decision

33. Game Theory
• A game is a generic term, involving conflict situations
of particular sort.
• Game Theory is a set of tools and techniques for
decisions under uncertainty involving two or more
intelligent opponents in which each opponent aspires
to optimize his own decision at the expense of the
other opponents.
• In game theory, an opponent is referred to as player.
Each player has a number of choices, finite or infinite,
called strategies.
• The outcomes or payoffs of a game are summarized as
functions of the different strategies for each player.

34. Major Assumptions
• Players – the number of participants may be two
or more. A player can be a single individual or a
group with the same objective.
• Timing – the conflicting parties decide
simultaneously.
• Conflicting Goals – each party is interested in
maximizing his or her goal at the expense of the
other.
• Payoff – the payoffs for each combination of
decisions are known by all parties
• Information Availability – all parties are aware of
all pertinent information.

35. Meaning of Linear Programming
Linear programming is a mathematical
method that is used to determine the best
possible outcome or solution from a given
set of parameters or list of requirements,
which are represented in the form of linear
relationships.
• Linear Programming model seeks to
maximize or minimize a linear function,
subject to a set of linear constraints.

36. • The Linear Programming problem is formulated to determine
the optimum solution by selecting the best alternative from
the set of feasible alternatives available to the decision maker.
• The linear model consists of the
following components:
– A set of decision variables.
– An objective function.
– A set of constraints.

37. Assumptions of LP

38. Merits of LPP
• Linear programming helps in attaining the
optimum use of productive resources.
• Linear programming techniques improve the
quality of decisions.
• Linear programming techniques provide possible
and practical solutions
• Highlighting of bottlenecks in the production
processes is the most significant advantage of this
technique.
• Linear programming also helps in re-evaluation of
a basic plan for changing conditions.

39. DISADVANTEGES OF LPP
• There should be an objective which should be
clearly identifiable and measurable in
quantitative terms.
• There should be a series of feasible alternative
courses of action available to the decision
makers, which are determined by the resource
constraints.
• The relationships representing the objective as
also the resource limitation considerations,
represented by the objective function and the
constraint equations or inequalities, respectively
must be linear in nature, which is not possible.