3.2 Business Objectives

Question 1

When does revenue maximisation occur?

Answer 1

MR = 0

Question 2

Why might a business want to revenue maximise?

Answer 2

-Economies of scale
-Predatory pricing (undercutting rivalry prices)
-Divorce of ownership and control, principal-agent problem (managerial utility maximisation)

Question 3

Where does sales maximisation occur?

Answer 3

AC = AR
* Where TR only just covers TC, breaks even

Question 4

Why might a business want to sale maximise?

Answer 4

• Economies of scale
• Limit pricing to decertivise new firms entering the market
• Divorce of ownership and control, principal-agent problem (managerial utility maximisation)
• Flooding the market to raise brand awareness and develop brand loyalty

Question 5

What is satisficing?

Answer 5

Firms trying to achieve satisfactory rather than optimal results

Firm aims for a satisfactory level of profit or other objectives, rather than maximizing it, often due to constraints like limited information or conflicting objectives.

Question 6

Profit satisficing?

Answer 6

Mixture of profit maximization and satisficing
Firms seek to make enough profit to satisfy the demands of stakeholders

Question 7

Where does profit maximisation occur?

Answer 7

MR = MC

Question 8

Why might a business want to profit maximise?

Answer 8

• increased profit
• Increased wages

Question 9

Incentives for firms to pursue corporate social responsibility?

Answer 9

Socially irresponsible firms = negative image of firm held by workers and consumers = fall in firms’ revenues/profits and lowered worker productivity

Also = increased gov. regulation

Question 10

Examples of corporate social responsibility

Answer 10

• Avoidance of polluting activities
• Support for human rights
• Art and athletics sponsorship
• Donations to charities