2.4 Critique of maximizing behaviour of consumers and producers

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Rational choices mean, economic agents make economic decisions with the benefits of each of them in mind. They will choose the choice with the highest benefit to them.
Assumptions;
Individuals use rational calculations to base their decisions off.
These choices are the ones that maximise their utility.
All agents have perfect information about all goods and services in the market. They use this information to make their decisions.

Rational choices are part of traditional economics.
However nowadays we know of behavioural economics, which opposes the assumptions made for rational choices.
These are biases, bounded rationality, bounded self control, bounded selfishness and imperfect information.
Biases can be, rule of thumb; any default decisions without giving it second thoughts. You might just keep going to the same fast food joint even though there is a better one down the street. Anchor and framing bias; anchor means people use the first piece of information given to make their decisions, framing refers to how products are displayed. Like, 10% fat vs 90% fat free. Availability bias is using the most readily available information to make your decisions.
Bounded rationality theory talks of how people may not gather all needed information before making their choices, due to time constraints, knowledge. Too much knowledge and choice can also be to detriment, like in a grocery shop.
Bounded self control is referring to people not having unlimited self control, they can be influenced by their environment.
Bounded selfishness refers to people not always having their own benefits in mind, like donating.
Imperfect information , information may not always be accessible to all, hence people will have to make decisions with limited knowledge.

Choice architecture is the design choices made to influence decision making. Buffets often have bread and rice placed at the front as they are cheaper than meat for the restaurant. This may also be used to simplify choices
Examples, Default options, restricted choice and mandated choices.
Restricted choice refers to limiting options to simplify decisions.
Mandated choices is self explanatory, for example having car insurance is necessary to drive in most countries.
However there are many ethical concerns about manipulation. Also this may lead to exploitation of biases.

This refers to small prompts made by producers to influence consumers decisions.
You may often see products on online websites listed as hot seller and/or put at the starting of the lists of products.
Such nudges should be designed with transparency and ethics in mind.
Nudges are very cost effective, and helpful for decision making but have led to rise in ethical concerns due to said lack of transparency.

Most firms main objective is profit maximisation as this also helps to satisfy stakeholders. This increases the value of share price for the company which adds to the wealth of shareholders of the firm. To do this they need to have Marginal cost equal marginal revenue, but this is easier said than done, often firms will either have MC<MR(they can make more money by increasing output) or MR<MC(output is too high).
To attain profit maximisation prices will be high for consumers, and higher than average costs of the the firm.
The difference between the selling price and average cost of the firms multiplied by the quantity gives us the firms supernormal profits.
Profit maximisation leads to higher efficiency and growth as they can reinvest profits into capital. However, ethical concerns about neglection of other stake holding parties like employees are present. Profit maximisation can also lead to external costs.

Survival is often the objective of start ups which is self explanatory. Their next objective is often growth which is done by revenue maximisation to benefit from economies of scale as their output increases, they will produce until their MR is 0, hence profit maximisation is not possible while maximising revenue as costs are also higher.
Firms may also maximise sales by selling at a price where they breakeven and make no losses. This can be referred to as a clearance sale. Here average costs = average revenue.
Growth helps with financial performance and creates opportunities for the economy, but can also lead to diseconomies of scale if they grow too much

Firms can also want to achieve satisfactory outcomes rather than the most optimal outcome. Shareholder and other stakeholders have different objectives, shareholders want higher profits but employees want higher wages, so a firm may compromise to meet at a point where both can be achieved sustainably.
This makes all stakeholders happy and streamlines decision making as not as much research is needed as for profit maximisation but it is not the most optimal production method for the firm and can cause the firm to lose focus on other objectives.

This refers to firms conducting their business sustainably and with ethical considerations and can satisfy both their stakeholders and the wider society.
CSR helps to improve business image in the economy, it makes stakeholders and the society happy. However this comes with significant use of funds and resources and raising the expectations stakeholders and the society has of the firm. Firms can also be accused of socialwashing if they are caught trying to do CSR without actual commitment which is obviously bad for reputation.