3.2 Business Objectives Flashcards
What determines a firm’s motives?
Who controls it, including owners, shareholders, directors, managers, workers, the state, consumers, and pressure groups.
What is the primary goal of firms according to neo-classical economics?
Profit maximisation in the short run to maximise owners’ returns.
Why do firms aim for short-run profit maximisation?
To generate funds for investment and to survive economic downturns.
At what point do firms produce to maximise short-run profits?
Where MC=MR.
What happens if a firm produces less than the profit maximising point?
Producing more will increase profit since MR would be higher than MC.
What is revenue maximisation according to William Baumol?
Managers aim to increase revenue as it affects their salaries and prestige.
What is the consequence of a fall in revenue for managers?
It may reduce their salary and signal potential problems for the company.
What is the production point for revenue maximisation?
Where MR=0.
What is sales maximisation according to Robin Marris?
Managers aim to maximise the growth of their company above other objectives.
Why is size important for a firm according to sales maximisation?
It is believed that larger firms can survive economic downturns more easily.
What production point do firms target to maximise sales?
Where AC=AR.
What is a potential downside of sales and revenue maximisation?
It can necessitate a fall in price, leading to lower profits.
What is satisficing?
Making enough profit to satisfy owners while pursuing other objectives.
Why do managers follow profit satisficing?
Due to the principal-agent problem where their goals may differ from those of the owners.
What influences the amount of profit needed for satisficing?
The level of profit made by other firms.
