3.2 business objectives Flashcards
how do you workout profit maximisation
when Marginal cost = marginal revenue then no additional profit can be extracted by producing another unit
what are the benefits of profit maximisation
-Shareholders are likely to benefit from higher dividends
-higher profits lead to increased capital investment spending
what are the drawbacks of profit maximising
Higher prices for consumers which reduces real incomes and therefore purchasing powers -> lower level of consumer surplus
High profits act as an incentive for new firms to enter the market
companies may lose sight of the social/ ethical and environmental aspect of businesses
when does supernormal profit occur?
When total revenue > total costs
when does revenue maximisation occur
when marginal revenue = zero
Why may a firm revenue maximise?
To benefit from economies of scale
WHen does sales maximising occur?
Average costs =- average revenues (breakeven)
Why may a business sales maximise
To clear stock during a sale
what is profit satisficing?
Opting for a satisfactory level of profit rather than profit maximisation. e.g. happy with 150k profit a year rather than chasing for more
What do managers rationally want to achieve
maximise sales or revenue to increase their wage
What do shareholders rationally want
To profit maximise to maximise their dividends
