4.2 The objectives of firms

Question 1

What is the most important objective of most firms?

Answer 1

Profit

Question 2

What are examples of firm objectives? (4)

Answer 2

Profit
Survival
Growth
Increasing market share

Question 3

When does maximum profit occur?

Answer 3

Profit maximisation occurs at that level of output where the difference between total revenue and total cost is at its highest.

Question 4

How do you calculate total revenue?

Answer 4

Price x quantity sold

Question 5

How do you calculate total cost?

Answer 5

Fixed cost + variable cost

Question 6

What is Profit satisficing?

Answer 6

A level of profit below profit maximisation that satisfies the needs of the owners or managers of an organisation

Question 7

What is Sales maximisation?

Answer 7

This will increase the size of the firm and is likely to be an objective of senior management as larger businesses tend to pay higher wages than smaller, but more profitable ones

Question 8

What is revenue maximisation?

Answer 8

Some firms will seek to maximise sales revenue

This will occur at the point where marginal revenue = 0

Question 9

What is market share?

Answer 9

Increasing the percentage of the total market that one particular brand or business owns