3.2 - Business Objectives

Question 1

Give the three main objectives of firms.

Answer 1

• Profit maximisation
• Revenue maximisation
• Sales maximisation

Question 2

Define profit maximisation.

Answer 2

Profit maximisation is a business objective focused on increasing profits in the short run.

Question 3

What is the requirement for profit maximisation?

Answer 3

The requirement is that MC = MR (Marginal Cost should equal Marginal Revenue).

Question 4

Give a benefit of profit maximisation/Why would firms aim to maximise their profits.

Answer 4

Through profit maximisation, shareholders can receive higher dividends and a greater return on profits.

Question 5

Give another benefit/reason why firms wish to maximise profits.

Answer 5

Through profit maximisation, the more profits gained means more can be reinvested in the firm, boosting growth even further. This is known as ‘organic growth’

Question 6

What will a firm have to sacrifice when maximising profits in the long run?

Answer 6

A firm will sacrifice short run profits

Question 7

Define revenue maximisation.

Answer 7

Revenue maximisation is a main business objective focused on selling at a price which achieves greatest total revenue.

Question 8

Give the requirement for revenue maximisation.

Answer 8

For revenue maximisation, the MR (Marginal Revenue) must equal 0.

Question 9

Give a benefit of revenue maximisation/Why would firms aim to maximise their revenue.

Answer 9

Economies of scale - This is because on the diagram of revenue maximisation, we can see the very high quantity of output occuring during revenue maximisation