what is profit making
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what is profit making

Adam Smith began as a logical starting point for "the personal gratification of the activity of personal gratification," and the market was "laissez-faire". The activities of the government completely unable to intervene in the pursuit of personal wealth, also don't have to worry about the laissez-faire altogether will create chaos, "an invisible hand" will be taking the laissez-faire personal economic activities arranged in perfect order. In other words, Adam Smith's market concept focuses on limiting government interference in individual economic activities. The wealth of nations also spends a considerable amount of time attacking the mercantilist policies that interfere with individual economic activity and limit individual economic power (property rights). Later classical economists stuck to their laissez-faire views. Although an enterprise's internal trade fair eliminates or reduces some of the market transaction costs, it also brings with it the specific transaction costs of the enterprise. The main reason for this defect is also the incompleteness of information. Specifically, first, there are various contractual relationships among enterprises, including contractual relationship between enterprises and workers, contractual relationship between enterprises and managers, etc. The enterprise should supervise the work of the workers and products that it employs, as well as the managers and other personnel, and induces them to work hard for the enterprise. So, companies are signing contracts and spending on oversight and incentives. Secondly, on the one hand, corporate decision makers often need to obtain information from subordinates. On the other hand, the decision-making information of the upper level of the enterprise should be realized by passing it to the subordinate. The information transmission of these two different directions will be distorted by the increase of subordination of enterprise scale, resulting in the loss of enterprise efficiency. Once again, the subordinate of the enterprise often conceals or passes the wrong information to the superior for selfish motives, so that the superior can make decisions that benefit the subordinate. Or, the subordinate's decision to the superior only passes or executes the part that is advantageous to oneself. These will result in the loss of enterprise efficiency. Thus, the expansion of enterprises is limited. According to coase's theory, the scale of the enterprise should be expanded to this point, that is at this point to increase the cost of an internal exchange cost equals the cost through the market exchange cost and so on. The rubber hose in the engine compartment will be used for a long time and it will be a problem for older vehicles. Once aging, gasoline can leak into the engine compartment. The air conditioning system will allow the smell of petrol to enter the car. Therefore, once the rubber tube is old, need to change promptly!