1.1.2 Business Objectives Flashcards
What are the business objectives? (there’s 9 on here)
- Profit maximisation
- Sales maximisation 3. Satisficing 4. Survival
- Market share 6. Cost efficiency 7. Return on investment (ROI)
- Employee welfare 9. Customer satisfaction
What is profit?
Profit is the difference between total revenue (TR) & total cost (TC)
TR - TC = Profit
When does a firm break even?
TR = TC
When does profit maximisation occur?
Where marginal cost (MC ) = Marginal revenue ( MR)
When does profit increase?
MR > MC
What is sales maximisation?
When firms aim to sell as much of their goods & services as possible w/o making a loss
Why might firms want to sales maximise ?
It helps keep out and deter competitors
Equation for sales maximisation?
Average cost ( AC) = Average revenue ( AR)
What is Satisficing?
When it is earning just enough profits to keep its shareholders happy.
Why might a firm use Satisficing as an objective?
There could be higher rewards from shareholders than profit
When does Satisficing occur?
Where there is a divorce of ownership & control
Why might some firms choose to profit maximise?
It provides greater wages & dividends for entrepreneurs
What is Survival?
Aim to sell as much as possible to keep their market position.
What is market share?
Helps increase the chance of surviving in the market; By maximising sales
How can market share be achieved ?
Through maximising sales which leads to customer loyalty
What is cost efficiency?
The more cost efficient a firm is, the lower it’s average.
Why might a firm use cost efficiency?
This gives the firm a competitive advantage as they can afford to charge consumers lower prices
What is return on investment ( ROI)?
The reward for taking these risks ( investments) is profit
What is employee welfare?
Some firms might try & ensure their employees are well looked after
What is customer satisfaction?
Firms might aim to increase their competitiveness by improving their quality & service
