3.2.1 Business Objectives Flashcards
What is profit maximisation?
Trying to earn the highest possible income and maximise profits
Why would a firm’s objective be to profit maximise?
- to provide a financial return to owners/shareholders
- to attract investors and capital
- indicates efficient resource allocation and cost control
What is revenue maximisation?
To maximise total revenue from the sale of goods or services
Why would a firms objective be to revenue maximise?
- focus on increasing market share and capturing a larger customer base
- used to establish its presence in the market quickly
- can lead to higher long-term profits if accompanied by cost control
What is sales maximisation?
To maximise the number of units sold, regardless of profit
Why would a firms objective be to sales maximise?
- to gain market share when competition is intense
- to maintain a dominant market position
- to deter new entrants
What is satisficing?
To achieve a satisfactory level of profit or performance, rather than maximising it
Why would a firms objective be to do satisficing?
- to prioritise other goals i.e. employee satisfaction, social responsibility, long-term sustainability
- to reduce the pressure to continually push for higher profits
Formula for profit maximisation
Profit (π) = Total revenue (TR) - Total cost (TC)
Where does profit maximisation occur?
When MC = MR
Formula for revenue maximisation?
Total revenue (TR) = Price (P) x Quantity sold (Q)
Where does revenue maximisation occur?
MR = 0
What is the formula for sales maximisation?
Sales (Q) = Market demand (D) or a company’s production capacity
Where are sales maximised?
Average revenue = average cost
