Advanced Materials Research
ISSN: 1662-8985, Vols. 524-527, pp 3000-3004
doi:10.4028/www.scientific.net/AMR.524-527.3000
© 2012 Trans Tech Publications, Switzerland
Online: 2012-05-14
Analysis on the Business Objectives and Behavior Patterns of the Coal
Enterprise Basis on Social Responsibility Cost
Shuangxi Gao1, a
1
North China Institute of Science and Technology, Beijing, China
a
[email protected]
Keywords: Coal Enterprise, Social Responsibility, Profit maximization, Sales income maximization,
Sales Maximization, Profit Maximization.
Abstract. As for coal enterprise, whether it should maximize profit, or maximize sales for the target
is more beneficial to development of coal enterprise and coal industry, is always a study topic in
economics field. Economics theory is applied in this thesis, inferring that coal enterprise' target profit
of seeking sales maximization is lower than maximum possibility profit, and Social Responsibility
Cost of seeking sales income maximization is more than that of seeking profit maximization, which is
advantageous for improving level for coal enterprise. While Social Responsibility Cost increases,
coal enterprise' coal price and coal output are invariable for enterprise seeking profit maximization,
but other enterprise that seeks sales maximization will cut down output and improve coal price. At
last, the thesis brings forward that government ought to guide coal enterprise to seek sales
maximization, not profit maximization. There by, government should formulate the coal enterprise
‘Social Responsibility Cost policy' according to coal enterprise target, which is beneficial for coal
enterprise to increase Social Responsibility Cost at the same time and control coal output and price, as
well as health development of our country's coal industry.
Introduction
Corporate Social Responsibility (CSR) is a concept first presented by English scholar Oliver Sheldon
in 1924. He related the Corporate Social Responsibility with the responsibility that the business
operators need to take to satisfy the needs of people both within and outside the corporation [1].In 1953,
H. Bowen explicitly described the concept of Corporate Social Responsibility in his book The Social
Responsibility of Merchant. He believed that “Corporation is responsible to make decisions
following the expected goal and value of society.” [2] After Bowen recognized the significant impact
resulted from the resources, power and activities of the big corporations, the research on the
Corporate Social Responsibility began. Since 1920s when this concept was raised in the western
society, this concept has received a wide attention from academic and business fields. Recently, it is a
common phenomena that corporations in China lack social responsibility: the frequent accidents in
coal mining industry, pollution of the environment, workers' right problems, fake or low-quality
commodity, safety problems of food and medicine, especially the explosion accident in Jilin chemical
plant, toxic SanLu milk powder and the collapse of the dam in Shanxi. All those serious accidents are
related to the lack of the Corporate Social Responsibility. It even increases the conflicts in society and
finally leads to the inharmonic factors when building the harmonic society. To deal with those
problems, scholars worldwide have done a lot of research[2,3]. Based on these researches, we use the
related principles in economics to analyze these problems and finally reach the conclusion that the
operation goal of coal enterprise has a significant influence on Social Responsibility Cost[4].
In Economics, when analyzing the behavior patterns of enterprises, the goal of enterprise is
normally assumed to be maximizing the profit. However, in real world, especially in the fast growing
economy in China, the need for coal is growing significantly. Additionally, the society requires the
Coal Enterprise to take more responsibilities. For coal enterprise, it has been a topic in economics
whether choosing profit maximization or sales income maximization to be the goal will be more
beneficial to encourage enterprises to take more social responsibility and pay more Social
Responsibility Cost and more importantly, for the development of coal industry. The difference of
operation goal can have different influences on enterprises' behavior. In this report, this topic will be
deeply analyzed using knowledge in economics.
All rights reserved. No part of contents of this paper may be reproduced or transmitted in any form or by any means without the written permission of Trans
Tech Publications, www.ttp.net. (ID: 130.203.136.75, Pennsylvania State University, University Park, USA-11/05/16,23:57:50)
Advanced Materials Research Vols. 524-527
3001
One behavior pattern of Coal Enterprise: Sales income maximization with a certain level of profit
In the precondition of having a certain amount of profit, Sales income maximization is a common
behavior in the behavior pattern of multiple-goal enterprise. This behavior assumes that when the
profit has reached an acceptable level, the goal of having more profit will become less important
compared to increasing sales income. In this case, the managers will try to maximize sales income
even though they may need to give up the high profit. Bob believed that the reason why enterprises
want to maximize sales income is because sales income is an important criterion of how well the
enterprise is operated. The amount of sales income reflects customers and society' opinions about the
enterprise' products, the status of the enterprise in the market competition and the scale of the
enterprise. These factors are important to make the enterprise more energetic. Also, Sales income
maximization is a base of pursuing managers' personal goals. For example, the reputation and salary
of the executives are largely related to the scale of the enterprise. However, in order to maximize sales
income, the enterprise must first earn enough profit. The amount of profit should satisfy the
stockholders and also be helpful for enterprise to attract fund outside the enterprise.
Based on the above assumption, this report will analyze the behavior of Sales income
maximization. In Figure 1, TC, TR and π are the curves of total cost, total sales income and profit.
The volume of production is Q1 when the profit is at maximum, Q3 when sales income is at maximum.
Assume that one enterprise can only go for maximum sales income when it has finished the profit
goal π1, then the maximum production volume cannot exceed Q1. Assume the profit goal isπ2, then
the enterprise has to reduce the price in order to increase sales to Q2 and sales income to TRQ2. At that
time, the profit is equal to π2. Although π2 is less than the maximum profit, the enterprise has achieved
the profit goal and also increase the sales income. This is how to maximize sales income while
keeping a certain amount of profit. Finally, if we assume that the minimum requirement for profit
isπ3, then the enterprise has to further reduce price to achieve the production volume of Q3 and let the
sales income to increase to the maximum number TRQ3. However, the enterprise cannot let the
production volume exceed Q3 since if it exceeds Q3, the sales income will decrease. From the above
analysis, we can see that when the production volume is less than Q1, reducing price can both increase
profit and sales income. When the production volume is between Q1 and Q2, reducing price will
decrease the profit but increase sales income, which is good to satisfy other enterprises' requirements
for the enterprise and further enhance the development of economy. When the production volume
exceeds Q3, reducing price will both decrease the profit and sales income. Therefore, the following
conclusion can be reached: if the goal of the enterprise is to maximize sales income with a certain
level of profit, and this profit is less than the maximum possible profit, then the price should be lower
than the price when there is maximum profit and the production scale should be larger than that of
maximum profit. This is more beneficial to increase the social responsibility cost.
The comparison of enterprise's behavior of profit maximization and sales income maximization
The different goals of enterprise can lead to different behaviors. Different behaviors can then
influence the social responsibility cost. Below is the analysis from three perspectives.
The social responsibility cost of coal enterprise
The choice of enterprise goal will influence the social responsibility cost. Generally speaking, when
choosing from sales income maximization or profit maximization, the enterprise is more willing to
spend more on social responsibility cost, in other words, maximize sales income. This can be
explained using Figure 2. The x axis in(a), (b)represents the social responsibility cost. The y axis
represents the cost, profit and sales income. To simplify the explanation, let's assume that the total
cost(TC) changes linearly with the social responsibility cost. When the social responsibility cost is
zero, the total cost is TC0. TC includes the total cost of production and sales as well as social
responsibility cost. The shape of TR is resulted from the following assumption: in a long term, the
sales and sales income will increase as social responsibility cost increases. However, as the profit
from the social responsibility cost decreases, the sales income also decreases. In Figure 2. (b), the
curve of total profit (π)is resulted from the difference of the total income and cost on different level of
3002
Natural Resources and Sustainable Development II
social responsibility cost. It illustrates the profit of different social responsibility cost. Figure 2.
shows that when the profit is at maximum, the total social responsibility cost is A1, but when the coal
enterprise maximize the sales income while maintaining the profit , then the optimal social
responsibility cost will be A2. Extra social responsibility cost will change TRA1 to TRA2 but still keep
the total profit greater than the expected profit π1. Therefore, as long as the expected profit in sales
income maximization is less than the maximum possible profit, it is beneficial for coal enterprise to
spend more on social responsibility cost.
Income/Cost
TRQ3
TC
TRQ2
TRQ1
TR
(a)
O
Q1
Q2
Production Q
Q3
Profit π
π1
π2
(b)
π3
O
OQ11
QO
2 2
O3 3
Q
Production Q
Figure 1 The analysis of behavior pattern of Sales income maximization coal enterprise with a certain
level of profit
Income/Cost
TC
TRA2
TR
TRA1
(a)
O
A1
A2
Social Responsibility cost A
Profit π
(b)
π1
Social Responsibility cost A
O
A1
A2
Figure 2 The analysis of the influence on coal enterprise's behavior caused by the change in social
responsibility cost
The influence on coal enterprise when the social responsibility cost changes
The change of social responsibility cost can have different influences on the decision of price and
production scale of coal enterprises that have different goals. In Figure 3, the initial total social
responsibility cost, total cost, sales income and the function of profit are TFC1, TC1, TR1 and π1. If the
goal of the coal enterprise is profit maximization, then the optimal production volume is Q1. If the
goal is sales income maximization with certain profit, then the optimal production volume is Q2. Now
let's assume that the coal enterprise increases the social responsibility cost (assume it to be a fixed
cost). Then, this will lead to the increase of total cost including social responsibility cost to TFC2.
Advanced Materials Research Vols. 524-527
3003
This will further let the function of total cost change to TC2 and at meantime change the function of
profit from π1 to π2. If the coal enterprise's goal is profit maximization, then the increase of social
responsibility cost will not have influence on price and production scale since the increase of social
responsibility cost will only cause the peak of the profit curve to decrease and this peak does not move
left or right. From Figure 3, we can see that the change of social responsibility cost will have
influence on those enterprises that have a goal of sales income maximization. The curve of total profit
will move downwards and make the profit less than the acceptable level when the production is Q2. In
order to increase the profit to an acceptable level, the enterprises who want to maximize sales income
have to reduce the production volume to Q3 and therefore, increase price. Therefore, when analyzing
the influence that the change of social responsibility cost has on price and production scales, the goal
of coal enterprise becomes a crucial factor. When the social responsibility cost increases, the
enterprise that maximizes profit won't need to change price and production volume, but the enterprise
that maximize sales income needs to reduce production volume and increase the price of coal.
TC2
Income/Cost
TC
TC
11
TR
(a)
TFC2
TFC1
O
Q1
Q3
Production Volume Q
Q2
Profit π
(b)
π（acceptable profit）
O
O11
Q
O3 2 Q2 O3
Q
Production Volume Q
π2 π1
Figure 3 The analysis of the influence on coal enterprise's behavior caused by the change in social
responsibility cost
The influence on coal enterprise's behavior resulted from the change of the ratio of social
responsibility cost
Generally speaking, as the enterprise grows, the scale of the enterprise will become larger and the
total sales income, total profit, total cost as well as the total social responsibility cost will also
increase. The ratio of social responsibility cost to the total cost will possibly increase, decrease or
remain the same. How does this influence the behavior and goal of coal enterprise?
In Figure 4, TR is the total sales income. TC is the total cost and π1 is the profit after tax. OA is the
expected profit and the production volume is Q1 when the profit is at maximum. In the precondition of
achieving expected profit, the production volume is Q2 when the sales income is at maximum. Now
let's assume that in order to response to the call from government and society of taking more social
responsibility, coal enterprise increases their social responsibility cost and thus increase the ratio of
social responsibility cost. However, the profit and tax will decrease. As shown in Figure 4, the
increase of social responsibility cost will move the curve from π1 to π2. The peak of π1 and π2 will not
change, which will still be Q1. This illustrates that for those enterprises that maximize profit, when the
ration of social responsibility cost increases, the optimum production volume and price remain the
same. However, for enterprises who maximize sales income, in order to keep the expected profit π,
the production volume must be reduced from Q3 to Q2 and the price need to be raised in order to
increase the ratio of social responsibility cost. On the contrary, decreasing the ratio of social
3004
Natural Resources and Sustainable Development II
responsibility cost will move the profit curve from π1 to π3 with the peaks remain the same which is
Q1. This illustrates that for enterprise who wants to maximize profit, after decreasing the ratio, the
optimum production volume and price remain the same. However, for enterprise who wants to
maximize sales income, in order to keep the expected profit π, the production volume must be increased
from Q3 to Q4 and reduce price when decreasing the ratio of social responsibility cost. Therefore, for
sales income maximization enterprise, in order to achieve expected profit, they have to decrease
production volume and increase price to increase the ratio of social responsibility cost and vice versa.
Income/ Cost
TC
TRQ3
TRQ2
TRQ1
TR
(a)
Q4
O
Q1
Q3
Q2
Production Volume Q
Profit π
π3
(b)
π（Acceptable Profit）
A
π2
O
π1
QO11
OQ34
2
QO
3 Q2
Production Volume Q
Figure 4 The graphical analysis of the influence on coal enterprise's behavior caused by the change
in social responsibility cost
Conclusions
● As long as the expected profit of sales income maximization enterprise is lower than the
maximum possible profit, having more social responsibility cost than the profit maximization
enterprise will improve the safety of enterprise (which is enterprise's responsibility to workers) and
encourage sustainable economy in coal industry.
● When the social responsibility cost increases, the profit maximization enterprise does not need
to change the production volume and price, but the sales income maximization enterprise needs to
reduce production and raise the coal price. This is beneficial to the adjustment of the total production
volume in coal industry and the improvement of the industry structure.
● For the profit maximization enterprise, in order to maximize profit, increasing the ratio of social
responsibility cost won't change the price and production volume. However, for sales income
maximization enterprise, in order to achieve expected profit, they have to reduce production and raise
price after increasing the ratio of social responsibility cost and vice versa.
References
[1] Bowen, H. Social Responsibility of the Businessman[M].New York: Harper and Row, 1953(6).
[2] Oliver Sheldon. The Philosophy of Management.London: Sir Isaac Pitman and Sons Ltd，1924.74.
[3] R.M. Ren, X.M. Zhu, Analysis from Different perspectives on Enterprise's Social Responsibility,
Beijing: Peking University Press. In Chinese，2009.14~15.
[4] Friedman, Milton.Capitalism and Freedom.Chicago: University of Chicago Press ，
2002.133.Reference From: H.t. Shen, Y.F. Shen,The Origin and Development of the Concept of
Enterprise Social Responsibility，Shanghai Renmin Press, In Chinese .2007:35~36.
[5] RL. Shen, Management Economics, China Renmin University Press,In Chinese, 2006, 16(12).
Natural Resources and Sustainable Development II
10.4028/www.scientific.net/AMR.524-527
Analysis on the Business Objectives and Behavior Patterns of the Coal Enterprise Basis on Social
Responsibility Cost
10.4028/www.scientific.net/AMR.524-527.3000