3.2 Buisness Objectives

Question 1

what is profit maximisation?

Answer 1

marginal cost = marginal revenue

Question 2

what is revenue maximisation?

Answer 2

marginal revenue = 0
- developed by economist William Baumol whose work focused on the decisions of manager-controlled businesses (cared more about revenues)
- buissness may wish to deter the profitable entry of new firms/rivals

Question 3

what is sales maximisation?

Answer 3

average revenue = average total cost (normal profits are made)
- businesses maximise output without making a loss

Question 4

what is satisficing behaviour?

Answer 4

when the owners of a business (shareholders) set minimum acceptable levels of achievement of either revenue or operating profits

Question 5

what are the reasons for different objectives?

Answer 5

• managerial objectives
• information constraints/gap
• small buisness/start ups
• state owned corporations

Question 6

✅ of aiming to maximise profit?

Answer 6

• shareholders get higher dividends
• employees may earn more if pay is linked to profitability of business
• higher profits may lead to increased capital investment which will benefit over business in the industry such as engineering and construction
• safety net incase of recesssion

Question 7

❌ of aiming to maximise profit?

Answer 7

• higher prices for final consumer which reduces their real incomes
• incentive for new firms to enter the market
• loose sight of social, ethical + environmental aspects of business
• negatively impact quality