3.2 Business Objectives

Question 1

Profit Maximisation

Answer 1

Profits are maximised at an output level where marginal cost = Marginal revenue
MR=MC

Question 2

Revenue Maximisation

Answer 2

Revenues are maximised at an output where marginal revenue= zero

Question 3

Sales Maximisation

Answer 3

Supplying the largest output possible consistent with earning at least normal profits where AC=AR

Question 4

Sacrificing behaviour

Answer 4

Involves the owners of a business setting minimum acceptable levels of achievement of either revenue or operating profits

Question 5

Benefits from aiming to maximise profits

Answer 5

Shareholders are likely to benefit from higher dividends
Employees pay may improve
Higher profits may lead to more investment and therefore other industries in engineering and construction will benefit
Provides a safety net for businesses in tough times or recession

Question 6

Drawbacks from aiming to maximise profits

Answer 6

Higher prices for final consumers- lower level of consumer surplus
Higher profits may lead to more firms entering the market
Companies that become overly focused on maximising profits may lose sight on other issues
If profits are increased by lower costs this could impact quality

Question 7

GO THROUGH DIAGRAMS