In this assignment, I will focus on different goals that a business can have, including whether profit maximization is always the goal of a business. I will consider alternative goals a business may have based on a number of factors and responsibilities. Profit maximization occurs when a firm makes as much profit as possible and achieves this when marginal revenue equals marginal cost. Assuming that a company's actions are guided by profit maximization is a common economic theory. Profit maximization is the initial goal of a business, but it is assumed that there is no separation between the managers responsible for running the business and the owners of the business, which means that the business is owner-managed (Griffiths & Wall, 2011). Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an Original Essay This is more common in sole proprietorships and partnerships, but very rare in limited liability companies. If a company aims to meet the interests of shareholders, then profit maximization theory is supported to the extent that “the discounted stream of profits will equal the share price” (Black, 2017). In limited liability companies, shareholders, who are the owners of the business (Principals), often employ managers (agents) to run the business on a day-to-day basis. For this reason, some difficulties are encountered, notably the principal-agent problem, which arises when owners are unable to ensure that their objectives are realized by managers, due to a lack of knowledge (Sloman, 2015). This causes an asymmetric information problem, because owners are unable to observe the daily decisions made by the managers in charge, and are therefore unaware that profits are not maximized. This makes most companies pursue profit and not profit maximization, because managers still want to make profits for the company, but may focus more on long-term or short-term goals. There are several decisions a company can choose to make to ensure that there is no problem between the principal and the agency. One way to do this is to create an employee stock ownership plan. This is when employees of a company receive shares in that company, making them co-owners. Companies like John Lewis and Waitrose offer these schemes, which would prevent a principal agent issue from arising as the directors of the company will also be joint owners. This means that managers will share the same interests as the company's other shareholders and will run the company with these common goals in mind. Another way a company can avoid this problem is to offer the company's senior executives long-term contracts. By offering management a 5-10 year contract, it will encourage leaders to put the long-term interests of the company ahead of short-term interests. Since business owners want long-term success, this means that the goals of owners and managers are similar. One system a company could use to prevent a principal-agency problem is corporate governance. It is a way in which companies can be controlled and the owners put this governance in place by appointing people to a board of directors, who will set the, 2015)..