3.3.1 Objectives of a Firm Flashcards
What are the various aims of Firms?
- Profit Maximisation
- Profit Satisficing
- Sales Maximisation
- Revenue Maximisation
- Long Run Profit -Maximisation
- Ethical Goals
- Survival
When does Profit Maximisation occur?
Where there is the biggest difference between costs and revenue. MC = MR
When does Revenue Maximisation occur?
When MR = 0. If Marginal Revenue is not 0 then output can still be increased to increase revenue
When does Sales Maximisation occur?
When AC = AR. Ensures the highest output while still achieving normal profit
Why would firms adopt a profit satisficing approach?
To earn enough profit to satisfy shareholders and focus other goals
Why would firms adopt a sales maximisation approach?
-To increase market share and enjoy monopoly power like raising prices, or forcing others out of business
What is long run profit maximisation?
Where firms are willing to sacrifice profit in the short run in order to maximise profit in the long run
Why would a firm adopt sales revenue maximisation?
If the sale is run by professional managers, because they are usually paid from a percentage revenue and enjoy prestige
What factors affect whether firms will pick one goal over another?
Time period, who owns the company, who manages the firm
Who are the main actors that determine the objectives of the company?
- Owner/Shareholders
- Directors/Managers
- Consumers
