VALIDITY OF. PROFIT-MAXIMISING DOCTRINE
We have seen in thc analysis of a firm’s equilibrium that a producer is not interested in reducing either
his average cost or total cost to the minimum or in maximising his revenue. What he is interested really is in the difference between his total cost including normal profit and total revenue which is his profit. It is said that he wants to make this difference as big as possible. In other words, a firm seeks to maximise it profits. But is this assumption valid? But let us be clear as to what we mean by profitmaximisation. The normal profits are minimum income which the entrepreneur must get if he is to stay in business. The normal profits are included in that cost and, therefore. do not come under the profit maximizing principle. Therefore, it is the super-normal profits, i.e., true or pure profits, which is the residual income of the entrepreneur, which he aims at maximizing. There has been lot of controversy over this issue. There are economists who doggedly stick to this assumption and strongly assert that a firm exists and operates for no other purpose than to maxidisc profits. But there are others who question the validity of maximising doctrine.
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