3.2 - Business objectives

Question 1

Explain profit satisficing

Answer 1

= Involves the owners setting minimum acceptable levels of achievement in terms of revenue and profit.

• Price is set between sales max and profit max
• Use rules of thumb, rather than complex pricing policies.
• Business rely on simple-cost plus approaches rather than seeking the optimum profit-maximising price and output.
• The goal is to “make enough” snp to satisfy the demands of shareholders.

Question 2

Explain sales maximisation

Answer 2

= Maximising the volume (no.) of sales where AC = AR OR TC = TR.

• selling as much as they can WITHOUT making a loss.
• break-even point/normal profit
• lower price than profit maximising therefore consumer welfare and surplus increases

Question 3

Explain sales revenue/revenue maximisation

Answer 3

= Maximising the volume (no.) of sales where MR = 0.

• selling as much as they can even if it’s making a loss.
• lower price than profit maximising therefore consumer welfare and surplus increases

Question 4

Reasons for sale or sales revenue/revenue maximising

Answer 4

• They want to achieve a rapid growth of market share to increase brand dominance
• Strengthening BTO through limit pricing as a deterrent to new competitors and EOS.
• Short term strategy in order to profit maximise in the future.​
• Internally, annual salaries and bonuses of directors/managers may be linked to sales or sales revenue targets rather than profits, influencing the behaviour of employees.