3.2 Business Objectives Flashcards
Who controls firms motives
• Owners or shareholders
• Managers and directors
• The workers through unions
• The state through regulation
• Consumers through their consumer sovereignty
• pressure groups
What is profit maximising
Profit maximisation is where a firm maximises profits when they find a price and output wheee marginal revenue = marginal costs
Example of firms that are likely to profit maximise
Apple and pharmaceuticals companies are likely to profit mad since they need the money to reinvest
Benefits of profit maximising
• Generate funds for reinvestment
• appease stakeholders
• survive a slowdown during a recession
Where do firms produce to profit maximise on the graph
MR=MC
What is revenue maximisation
• revenues are maximised at an output level where marginal revenue = 0
• MR is the change in total revenue from selling an extra unit
Why do firms revenue maximise
• market penetration and expansion, can help gain market share, build brand recognition and establish a customer base
• costs - higher revenue may help get economies of scale
• attracting investors and financing: businesses with strong revenue growth can be more attractive
• business survival - cutting prices to increase revenue and improve cash flow can help in downturns
What is sales maximising
Sales maximising focuses on generating the highest possible level of sales within a given period perhaps as part of a wider objective of growing market share
When does sales and occur
When price per unit = average cost
Benefits of sales max
• may be able to take advantage of economies of scale, leading to lower average costs
• strong sales figures could attract investors interested in and make it easier for a business to secure financing for growth and expansion
Examples of firms that sales max
Netflix
Spotify
Examples of firms that revenue max
Amazon
Why does satisficing occur
Due to the principle agent problem where owners and directors will have different goals
What is satisficing
When there is the principle agent problem, managers will satisficing where they make enough profit to keep owners happy whilst following other objectives and not profit maximising
