3.1-Business objectives Flashcards
What is the Most important objective for firms ?
Profit maximisation
When do firms break even?
When TR=TC
When does profit maximisation occur?
Where MC=MR
Why do firms choose to profit maximise?
Greater wages, Retained profits are cheap source of finance, could lose shareholders
What is normal Profit?
Minimum reward required to keep entrepreneurs supplying their enterprise,TR=TC
What is supernormal profit?
Profit above normal profit, TR>TC
What is Sales revenue maximisation?
Occurs when MR=0. In other words, each extra unit sold generates no extra revenue
What is sales Volume maximisation?
When the firm aims to sell as much of their goods and services as possible without making a loss, Ac=AR
What is Growth maximisation?
Growth:increase size of firm
Market share: Increases chances of surviving in market
What is utility maximisation?
Consumers aim to generate the greatest utility possible from an economic decision
What is profit satisficing as a non-maximising objective?
Earning just enough profits to keep it’s shareholders happy, whilst meeting their other objectives
What is the principal agent problem?
Linked to asymmetric information, When agent makes decision for the principal, but the agent is inclined to act in their own interests, rather than those of principal
Example of principle agent problem?
Shareholders and managers have different objectives, managers might choose to make a personal gain
What is the linked demand curve ?
Illustrates the feature of price stability in an oligopoly, assumes other firms have an asymmetric reaction to a change in price by another firm.
What is game theory?
Related to concept of interdependence between firms in an oligopoly, Used to predict the outcome of a decision made but one firm with incomplete info
What is nash equilibrium?
Concept in game theory, describing the optimal strategy for all players
