9) objectives of firms profit max rev max sales max satisficing Flashcards
What is the objective of firms?
Profit maximisation
What are the reasons why firms want to promote maximise?
Reinvestment
Dividends for shareholders
Lower costs for lower prices for consumers
Reward for entrepreneurship
When do we have profit maximisation on a graph?
MC=MR
No more extra profit can be made past here
What are some of the reasons why a firm may not want to profit maximise?
They don’t know where their MC=MR point is
Avoid scrutiny
Key stakeholders may be harmed
Other objectives may be more appropriate for the firm eg profit satisficing
What does it mean in terms of profit maximisation to avoid scrutiny?
Avoiding scrutiny is when a firm is making very large profits regulators may think they are doing something dodgy
Eg. Short cuts with costs
High prices
What is profit satisficing?
Sacrificing profits to satisfy as many key stakeholders as possible
What is a stakeholder?
Anyone who has an interest in how that business is performing
When do we have revenue maximisation?
MR=0
When we are profit revenue and sales maximising, what curve do we read the price from?
AR=D curve
Why are the reasons why a firm may want to revenue maximise?
Economies of scale
Predatory pricing
Principle agent problem
When we have revenue maximisation why do we have greater economies of scale compared to when we are profit maximising?
Revenue max quantity is greater than the profit max quantity
Greater growth
Greater economies of scale
Lower average costs
Lower prices for consumer
What is predatory pricing?
Firms charge lower prices
Sacrificing profits
To under cut their competitors and drive them out the market
What is the principle agent problem?
Divorce between ownership and control
What is the idea of sales maximisation?
Idea that the business wants to become as large as possible without making a loss
When do we sales maximise?
AC=AR break even point
