3.2 Flashcards
1
Q
What are the four business objectives?
A
- profit maximisation
- sales maximisation
- revenue maximisation
- profit satisfying
2
Q
What is profit maximisation?
A
when a firm is operating at the price and output which derives the greatest profit, MC=MR
3
Q
Why would a firm profit maximise?
A
- Re-invest into R&D
- Reward the risk taken for starting a business
- It provides greater wages and dividends for entrepreneurs
4
Q
What is revenue maximisation?
A
Revenue maximisation is producing at a point that derives the greatest revenue, where MR=0.
5
Q
Why would a firm revenue maximise?
A
- Increase prestige of business- makes them look good
- Used as a justification for managerial rewards
- Increase market share
- EOS - output is greater at rev max than pmax
- Drive comp out as prices are lower than at pmax
6
Q
What is sales maximisation?
A
Sales maximisation occurs when a firm produces at a point where they sell as much as possible without making a loss, where AR=AC.
7
Q
Why would a firm sales maximise?
A
- Limit pricing = reduce comp
- Increase market share
- EOS
- Flood the market= increase output = causes product to be everywhere = builds brand loyalty
8
Q
What is profit satisfying?
A
Profit satisfying is when a firm earns just enough profit to keep its shareholders happy.
