3.2 - Business Objectives

Question 1

Profit maximisation

Answer 1

Process by which a firm seeks to achieve the highest possible level of profit, typically by optimising its production and pricing strategies. In economic theory, this is achieved when a firm determines the level of output where its marginal cost (MC) equals its marginal revenue (MR)

Question 2

Revenue maximisation

Answer 2

Strategy where a firm aims to achieve the highest possible revenue, regardless of whether this maximises profit. It focuses on increasing the total revenue (TR) rather than the difference between total revenue and total cost. A firm maximises revenue when it adjusts output to the level where marginal revenue (MR) equals zero

Question 3

Sales maximisation

Answer 3

Strategy where a firm seeks to achieve the highest possible sales volume, often at the expense of profit maximisation. The firm may lower prices or increase output to boost the number of units sold, aiming to expand its market share or sales figures in the short term. Sales maximisation occurs when average revenue (AR) equals average cost (AC)

Question 4

Profit satisficing

Answer 4

Strategy where a firm aims to achieve a satisfactory level of profit rather than maximising profit. This approach is often adopted by firms that prioritize stability and other goals over the pursuit of maximum profit. In this case, the firm accepts a “satisfactory” or “acceptable” profit level that meets its basic financial requirements, but it does not push for the highest possible profit

Question 5

Marginal revenue

Answer 5

The additional revenue a firm earns from the sale of one more unit of output

Question 6

Marginal cost

Answer 6

The additional cost incurred by a firm when producing one more unit of output

Question 7

Average revenue

Answer 7

The revenue a firm receives per unit of output sold. It is calculated by dividing the total revenue by the quantity of output produced

Question 8

Average cost

Answer 8

The total cost per unit of output produced. It represents the cost of producing each unit, on average, and is calculated by dividing the total cost by the quantity of output produced