Table of Contents
Serial No. Topic Date of topic Page no.
1 Firm, core 21/8/2020 2
objectives, theory of
firm, theories of
profit
2 Business ethics & 25/8/2020 3
Business law
3 E-Commerce portal 27/8/2020 4
4 International 29/8/2020 4
framework of
managerial
economics
5 Demand 29/8/2020 5
, Firm, theory of firm, and its core objectives
Firm is any business unit which may be in physical or virtual form. Firms are the economic entities
and are on the production side, whereas consumers are on the consumption side. Firm is in
existence to optimise its resources and operate in long run.
Core objectives of a firm: Core objective of any firm is to connect and integrate all verticals of
business. By verticals it includes all players who are directly or indirectly part of a respective firm. To
name a few, firm has suppliers, logistics, R&D, other stakeholders and shareholders. So, firm needs
to consolidate all these verticals.
Theory of firm: Theory of firm is a business model which states that is that management strives to
maximize the firm’s profits. A firm may follow sales maximization theory or profit maximization
which depends on objective with which firm is established. A point to note here is that in short run
firm may get higher profits but to operate in long run, they need to prioritise wealth maximization.
Theories of profit
It is the fulcrum of any organisation by consolidating price and quantity sold. We have various
theories of profits that govern the way firm exist and operates in market. These are as follows:
Risk bearing theory of profit: We can include pharmaceutical companies, bank and
insurance companies under this category since they deal with risk aversion business and
their investment is at stake depending upon risk of that transaction.
Innovation theory of profit: Google is great example to innovation theory of profit. It is one
such firm which constantly focuses on providing good value addition to its users. Apple and
Microsoft are another example of this.
Monopoly theory of profit: Here company practices monopoly theory of profit in a sense
that they set a benchmark for other players in market and hence enjoys majority in market
share. Examples: Ranbaxy and Maruti Suzuki.
Frictional theory of profit: Archies, Make My Trip are examples of this theory of profit
where a firm generally taps the potential demand in market which may be for a shorter
period of time. During Covid 19 times masks, sanitizer, PPE kits operated in frictional theory
of profit.
Cyclic theory of profit: Construction of metro, flyovers, highways, education institutes
(constant improvement in pedagogy), agriculture are few examples of cyclic theory of profit
where we observe rapid scope of profit, thanks to cyclic improvement.
Constraint optimization theory of profit: This generally refers to change in firm operations
intentionally because of government norms or law which needs to be adhere to. Example,
Frooti shifting from plastic packaging to tetra pack or say educational institutions practicing
physical mode to online mode of education.
Profit maximization theory of profit: One can say Apple, Starbucks follows profit
maximization theory of profit since they charge extra penny from their customers and in
return provide quality and value to their customers. Premium or experienced professional
may charge higher fees from his client just because of his value he brings to the table.
Business ethics & Business law
Serial No. Topic Date of topic Page no.
1 Firm, core 21/8/2020 2
objectives, theory of
firm, theories of
profit
2 Business ethics & 25/8/2020 3
Business law
3 E-Commerce portal 27/8/2020 4
4 International 29/8/2020 4
framework of
managerial
economics
5 Demand 29/8/2020 5
, Firm, theory of firm, and its core objectives
Firm is any business unit which may be in physical or virtual form. Firms are the economic entities
and are on the production side, whereas consumers are on the consumption side. Firm is in
existence to optimise its resources and operate in long run.
Core objectives of a firm: Core objective of any firm is to connect and integrate all verticals of
business. By verticals it includes all players who are directly or indirectly part of a respective firm. To
name a few, firm has suppliers, logistics, R&D, other stakeholders and shareholders. So, firm needs
to consolidate all these verticals.
Theory of firm: Theory of firm is a business model which states that is that management strives to
maximize the firm’s profits. A firm may follow sales maximization theory or profit maximization
which depends on objective with which firm is established. A point to note here is that in short run
firm may get higher profits but to operate in long run, they need to prioritise wealth maximization.
Theories of profit
It is the fulcrum of any organisation by consolidating price and quantity sold. We have various
theories of profits that govern the way firm exist and operates in market. These are as follows:
Risk bearing theory of profit: We can include pharmaceutical companies, bank and
insurance companies under this category since they deal with risk aversion business and
their investment is at stake depending upon risk of that transaction.
Innovation theory of profit: Google is great example to innovation theory of profit. It is one
such firm which constantly focuses on providing good value addition to its users. Apple and
Microsoft are another example of this.
Monopoly theory of profit: Here company practices monopoly theory of profit in a sense
that they set a benchmark for other players in market and hence enjoys majority in market
share. Examples: Ranbaxy and Maruti Suzuki.
Frictional theory of profit: Archies, Make My Trip are examples of this theory of profit
where a firm generally taps the potential demand in market which may be for a shorter
period of time. During Covid 19 times masks, sanitizer, PPE kits operated in frictional theory
of profit.
Cyclic theory of profit: Construction of metro, flyovers, highways, education institutes
(constant improvement in pedagogy), agriculture are few examples of cyclic theory of profit
where we observe rapid scope of profit, thanks to cyclic improvement.
Constraint optimization theory of profit: This generally refers to change in firm operations
intentionally because of government norms or law which needs to be adhere to. Example,
Frooti shifting from plastic packaging to tetra pack or say educational institutions practicing
physical mode to online mode of education.
Profit maximization theory of profit: One can say Apple, Starbucks follows profit
maximization theory of profit since they charge extra penny from their customers and in
return provide quality and value to their customers. Premium or experienced professional
may charge higher fees from his client just because of his value he brings to the table.
Business ethics & Business law
