3.2.1

Question 1

Different business objectives

Answer 1

Profit maximisation
Revenue maximisation
Sales maximisation

Question 2

Profit maximisation

Answer 2

a firms profit is the difference between TR and TC
A firm profit maximises when they are operating at the price and output which derives the greatest profit

Question 3

When does profit maximisation occur

Answer 3

When marginal cost = marginal revenue

Question 4

When does a firm break even

Answer 4

When TC = TR

Question 5

Why do some firms choose to profit maximise

Answer 5

• provides greater wages and dividends for entrepreneurs
• retained profits are a cheap source of finance, which saves paying high interests on loans
• in the short run, the interests of the owners and shareholders are most important, since they aim to maximise their gain from the company
• some firms might choose to profit maximise in the long run since consumers do not like rapid price changes in the short run, so this will provide a stable price and output

Question 6

Revenue maximisation

Answer 6

Occurs when MR= 0
Each extra unit sold generates no extra revenue

Question 7

Sales maximisation

Answer 7

When a firm aims to sell as much of their goods and services as possible without making a loss
Not-for-profit organisations might work at this output and price
AC=AR
Helps keep out and deter competitions

Question 8

Satsificing

Answer 8

Another objective a firm might have is satisficing
A firm is profit satisficing when it is earning just enough profits to keep shareholders happy
Occurs when there is a divorce of ownership and control