3.2 Business Objectives

Question 1

What are the 3 business objectives?

Answer 1

• Profit maximisation (short-run and long-run)
• Revenue maximisation
• Sales volume maximisation

Question 2

What are 2 benefits of short-run profit maximisation?

Answer 2

• Generates funds for investment
• Enables survival of a slowdown during a recession

Question 3

How do firms short-run profit maximise?

Answer 3

This is achieved by producing at an output and price where MC=MR, as they will be earning more in revenue than it costs to produce the good

Question 4

What happens if firms produce more than where MC=MR?

Answer 4

They will make a loss on the goods produced above the profit maximising point

Question 5

What is the difference between long-run and short-run?

Answer 5

• In the long-run, there are no fixed factors of production (all variable)
• Whilst in the short-run there are both fixed and variable factors (at least one fixed)

Question 6

Describe how firms can revenue maximise

Answer 6

Produce at an output where MR=0, as MR declines as output increases (if output increases beyond level where MR=0, MR is negative and TR falls)

Question 7

What is profit satisficing?

Answer 7

When a firm aims for a profit that is sufficient to satisfy the owners, rather than aiming to maximise profit at all costs

Question 8

Describe how firms can sales maximise

Answer 8

Sales maximising involves producing at where AC=AR, where prices are lower and output is higher than when profit maximising