2- Business objectives definitions

Question 1

Profit satisficing

Answer 1

When a firm earn just enough profit to keep its shareholders happy.

Question 2

Profit maximisation

Answer 2

When firms produce at a point which derives the greatest profit;
MC=MR

Question 3

Revenue maximisation

Answer 3

When firms produce at a point which derives the greatest revenue;
MR=0

Question 4

Sales maximisation

Answer 4

When firms produce at a point where they sell as many of their goods and services as possible without making a loss; AR=AC

Question 5

Principal agent problem

Answer 5

Where the agent makes decisions on behalf of the principal; the agent should maximise the benefits of the principal but have the temptation of maximising their own benefits.

Question 6

Divorce of ownership from control

Answer 6

Firms are owned by shareholders, who have little say in the day to day running of the business, and controlled by managers; this leads to the principal-agent problem.