1 point
QUESTION 14: Assertion (A) Profit earning is essential for the survival,
growth and expansion of any business. Reason (R) It is the sole objective of
all business firms
Assertion (A) is correct, but Reason (R) is incorrect
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct
explanation of Assertion (A)
Assertion (A) is incorrect, but Reason (R) is correct
Both Assertion (A) and Reason (R) are true. Reason (R) is the correct explanation of
Assertion (A)
Answers
Explanation:
It is generally believed that profit earning is the primary objective of business. However, as per modern thinking, business needs to have several objectives. Consistent and sustainable profit can be earned only if the business performs useful services to society. Business requires multiple objectives since it has to balance a number of needs and goals related to various aspects of society. Following only one objective cannot lead business towards excellence. Objectives are needed in every area where performance and results affect the survival and prosperity of business. Five of the objectives of business are described below (i) Profit Maximization Profit is defined as excess of revenue over cost. Profitability refers to profit in relation to capital investment. Although, earning profit cannot be the only objective of business, its importance cannot be ignored. Every business makes an attempt to reap maximum profit as possible in the given market conditions. Profit may be regarded as an essential objective of business for various reasons (a)It is a source of income for business persons. (b) It can be a source of finance for meeting expansion requirements of business. (c) It indicates the efficient working of business. (d) It can be taken as society's approval of the utility of business. (e) It builds up the reputation of a business enterprise. (ii) Market Standing Market standing refers to the position of an enterprise in relation to its competitors. A business enterprise must aim at standing on stronger footing in terms of offering competitive products to its customers and provide customer satisfaction. (iii) Innovation Innovation is the introduction of new ideas or methods. There are two kinds of innovation in every business (a) Product Innovation In product innovation a new product or service or an improved version of existing product is developed (b) Process Innovation This involves innovation in the methods, skills and activities needed to produce or supply products. Product demand starts declining after a span of time. At this stage, the business must introduce a new innovation to create fresh demand for the existing product by introducing new features in it or bring out a new product to sustain in the market. (iv) Productivity Productivity is calculated by comparing the value of outputs with the value of inputs. It is used as a measure of efficiency. Higher productivity leads to reduction in costs as the same amount of output is produced with lesser amount of inputs. This ensures survival and growth of the enterprise. (v) Social Responsibility Every business operates within a society. It uses the resources of the society and depends on the society for its functioning. This creates an obligation on the part of business to look after the welfare of society. So, all the activities of the business should be such that they will not harm, rather they will protect and contribute to the interests of the society. The activities of business towards the welfare of the society earn goodwill and reputation for the business in the eyes of consumers as well as government.