3.1 - business objectives Flashcards
What are businesses’ maximising objectives?
Profit
Sales Revenue
Sales Volume
Growth
Utility
Profit Maximising
Firms seeking to gain the most profit they can by increasing profits and reducing costs
Sales Revenue
Increased revenue from G+S
MR = 0
Sales Volume
Total number of G+S sold
Growth
Trying to increase the market share / size of the firms
Cutting prices / increasing sales
Utility
Seeking highest satisfaction from economic decisions
Strengths of maximising objectives
Maximises use of resources
Goods can become cheaper for consumers
Increased innovation of firms
Increased competition of firms
Weaknesses of maximising objectives
Hard to achieve all objectives
Conflict may arise of which objectives to prioritise
What are a businesses’ non-maximising objectives?
Profit satisficing
Social welfare
Corporate Social Responsibility
Profit Satisficing
Settling for profits which are not maximum they could make
What leads to profit satisficing
A split in the ownership and actual control of the business
Social welfare
Firms providing positives to society
How can firms benefit society?
Employment
Fair prices
Range of products
Corporate Social Responsibility (CSR)
Self-regulation which aims to contribute to society goals – philanthropic / activist / charitable
Examples of CSR
Volunteering
Charitable donations
Principle-agent problem
Agent (worker / manager) expected to act in best interest of principle (owner)
Agent has different incentives = conflict of interests
Strengths of non-maximising business objectives
Reduced pressure on workers
Flexibility to focus on other matters
Positive impacts on society
Weaknesses on non-maximising business objectives
Conflict of interests within firms
Cannot please everyone within the firm
Less positive impacts on the economy
Factors influencing the choice of business objectives
Aims of owners / shareholders
Ethics
Leader
Worker motivation / productivity
Position of the economy
Technological change
Age of the firm
Market share
Number of competitors
