3.2.1- Business objectives Flashcards
What are examples of business objectives?
-profit max
-revenue max
-sales max
-survival
-non commercial objectives (high quality, environment, ethical)
-personal objectives (satisfaction/status, autonomy of being self employed, maximise rewards)
What do neo-classical economists assume that a firms objective is?
To profit maximise as owners are the most important
Where is profit max on a graph?
MC = MR
What are the benefits of profit maximising?
-maximises returns to shareholders
-provides a cheap internal source of finance for investment
-rainy day savings
-may be able to reduce prices due to low costs
-reward for entrepreneurship
What is the evaluation of profit maximising?
-may not know where MC=MR is
-greater scrutiny from regulators if high profits are being made
-may harm key stakeholders
-other objectives may be appropriate
Why do firms revenue maximise?
-to improve prestige
-to justify managerial rewards
-if a firm is selling perishable goods
What are some examples of firms who sell perishable goods?
-ticket sellers
-flower sellers
-supermarkets (yellow stickers)
Where is rev max on a graph?
MR=0
What are the benefits of rev max?
-economies of scale
-predatory pricing
-increase brand loyalty + market share
What is bad about predatory pricing?
Illegal
Why do firms sales max?
To maximise growth +market share
How much profit is made when sales maximising?
Only normal profit
Where is sales max on a graph?
AC=AR
What are the benefits of sales max?
-economies of scale
-limit pricing (barrier to entry)
-brand loyalty +value
-to flood the market to create loyalty
What is profit satisficing?
Due to the principal agent problem, owners and directors have different objectives, so directors earn a certain amount of profit to keep shareholders happy but otherwise maximise other objectives
