Alternative Business Objectives

Question 1

Revenue maximisation

Answer 1

MR = 0

Question 2

Sales maximisation

Answer 2

AC = AR

Question 3

Managerial objectives

Answer 3

Rev or sales growth instead of profit max, can’t profit max as mangers don’t know cost curves,

Question 4

Profit max

Answer 4

MC = MR

Beyond this point extra units don’t make any profit

Question 4

Why profit maximise

Answer 4

Greater wages and dividends (what shareholders earn), more profit to invest in company (dynamic efficiency) what shareholders want

Question 5

Why rev max

Answer 5

Get known and grow, bigger market share, business growth, benefit from e.o.s, more realistic objective, make business less vulnerable to external threat (so ⬇️ uncertainty and ⬆️ investment), managers don’t have data/ cost curves to Pm, how managers wages are calculated (and they make the daily decisions)

Question 6

Why sales max

Answer 6

Eg Amazon kindle launch just sold as many as they can to gain market share and brand loyalty so they can make more profit inLR, same as rev max

Question 7

Satisficing

Answer 7

Managers don’t want to Pm but shareholders do so managers satisfy shareholder D ( ie profit satisfice) and once that D is met they maximise rev (but mitigate this by offering managers share options)

Question 8

Principle agent problem

Answer 8

Divorce of ownership of control- managers not supervised by shareholders, so conflict of managerial objectives