3.2.1

Question 1

Define profit satisficing

Answer 1

Profit satisficing occurs when there is a separation between ownership and control in a business and where managers may make decisions that take a firm away from the orthodox assumption of pure profit maximisation.

It occurs when owners of a firm set a minimum acceptable level of achievement in terms of profit/ %return on capital. But this gives managers some autonomy in how they price in different markets. It usually leads to setting lower prices, perhaps in a bid to increase revenue & market share

Question 2

Draw a profit satisficing diagram

Answer 2

Question 3

Why might a firm do profit satisficing?

Answer 3

Survival in fast changing and challenging conditions has for many become a paramount objective.

For example business responses to the pandemic, as many moved their business models away from pure profit maximisation.

Question 4

Draw profit maximisation diagram

Answer 4

MR=MC

Question 5

Draw a revenue maximisation diagram

Answer 5

MR=0

Question 6

Draw a sales maximisation diagram

Answer 6

AR=AC

Question 7

What are the welfare consequences of sales maximisation?

Answer 7

Lower prices for consumers in the short run, increasing consumer surplus. But it may also be a tactic to increase a firm’s market share which will give them greater monopoly pricing power in the long run