2- Business objectives

Question 1

Different business objectives

Answer 1

• Profit maximisation
• Revenue maximisation
• Sales maximisation
• Profit satisficing

Question 2

Why firms short-term profit maximise?

Answer 2

Firms can also generate funds for investment and to

help them survive a slowdown during a recession.

Question 3

Why firms revenue maximise?

Answer 3

• Increases manager’s prestige and is used as a justification for manger rewards.
• A fall in revenue may lead to salaries falling and the start of a downturn for the company- staff and financial institutions get worried.
• As long as there is some profits, shareholders happy to revenue maximise.

Question 4

Why firms sales maximise?

Answer 4

• Easier to judge level of growth rather than profit.
• Size is often linked to security- larger firms less likely to get into financial trouble.
• Growth leads to greater market share, and may push other firms out the market.
• Short term strategy.

Question 5

Why firms profit satisfice?

Answer 5

• Due to principal agent problem, manager want to make enough to keep shareholders happy but also follow their own objectives.
• The amount of profit needed will change year on year and will depend on the level of profit made by other firms.

Question 6

Other business objectives

Answer 6

• Managerial utility maximisation- where managers make decisions to benefit themselves.
• Allocative efficiency e.g. nationalised businesses.