What Are Some Disadvantages of Profit Maximization?


Quick Answer

Some of the disadvantages that can result from a company becoming overly focused on profit maximization are the ignoring of risk factors, a lessening or loss of transparency and the compromising of ethics and good business practices. Some profit maximization strategies may produce short-term results that ignore potentially costly situations developing in the long run. Poorly planned short-term profit maximization can also lead to a negative public perception that can significantly affect future sales.

Continue Reading
Related Videos

Full Answer

Profit maximization is an obvious goal of management, but it does not necessarily imply that short-term profit increases will produce long-term sustainable gains. For example, a reduction in product quality that lowers production costs will produce a quick increase in profit, but lowered quality standards can also tarnish a company's reputation and provide the competition with an advantage.

Lowering or eliminating a company's employee training or research and development budget will lessen operating expenses and also maximize short-term profits. However, the competition may not follow suit and instead produce a much better product or service. The long-term result could be a significant loss of market share for the company that decided to lower its budget to pursue a short-term profit gain.

Learn more about Economics

Related Questions