Monday, February 11, 2013

Monday, February 11, 2013 - ,

Discuss Marris Growth Maximization model

Profit maximization is traditional objective of a firm. Sales maximization objective is explained by Prof. Boumal. On similar lines, Prof. Marris has developed another alternative growth maximization model in recent years. It is a common factor to observe that each firm aims at maximizing its growth rate as this goal would answer many of the objectives of a firm.

Marris points out that a firm has to maximize its balanced growth rate over a period of time.
Marris assumes that the ownership and control of the firm is in the hands of two groups of people, i.e. owner and managers. He further points out that both of them have two distinctive goals. Managers have a utility function in which the amount of salary, status, position, power, prestige and security of job etc are the most import variable where as in case of are more concerned about the size of output, volume of profits, market shares and sales maximization.
Utility function of the manager and that the owner are expressed in the following manner-
Uo= f [size of output, market share, volume of profit, capital, public esteem etc.]
Um= f [salaries, power, status, prestige, job security etc.]
In view of Marris the realization of these two functions would depend on the size of the firm.
Larger the firm, greater would be the realization of these functions and vice-versa. Size of the firm according to Marris depends on the amount of corporate capital which includes total volume of the asset, inventory level, cash reserve etc. He further points out that the managers always aim at maximizing the rate of growth of the firm rather than growth in absolute size of the firms. Generally managers like to stay in a grouping firm. Higher growth rate of the firm satisfy the promotional opportunity of managers and also the share holders as they get more dividends.