ABSTRACT
The first essential determinant of the kind and quantity of purchases and sales that a firm makes is the objective after which it is striving. In the theory of the free exchange economy we usually start from the assumption that the private firm, with which alone we are concerned, aims at the maximum profit under the conditions in which it is operating; that is, it aims at making as large as possible the difference between its revenue (or the selling value of the quantities of goods it plans to sell) and the (planned) costs of this quantity. As the amount of profit relates to a particular period of time, we have to ascertain the period over which the firm is aiming at maximising its profits. Here we have to distinguish between profits planned for a single economic period (for example, for the coming year) and the planning of a profit over several economic periods. In planning of the first kind (or “short-term” planning) a maximum revenue is being aimed at only for the single period, while in the second kind of planning (or “long-term” planning) the aim of the firm is to maximize profit over several periods. We shall be concerned with both kinds of planning and with both kinds of objective. Moreover, we shall have to examine the problems and plans of the firm which is aiming at other objectives (for example, a conventional rate of profit).
