buisness obj Flashcards
Profit satisficing
When a firm earn just enough profit to keep its’ shareholders happy
CSR
when firms take responsibility for consequences on the enviro and behave more ethically
Profit maximisation
Firms produce at a point which derives the greatest profit MR=MC
Sales revenue max
Firms produce at a point which derives the greatest revenue MR=0
Sales volume max
Firms produce at a point where they sell as many of their G&S as possible without making a loss AR=AC
Growth max
Firms aim to increase the size of their market share eg. through mergers
Utility max
firms aim to max social utility
Principle agent problem
where the agent makes descisions on behalf of the principle
the agent SHOULD maximise the benefits of the principle BUT have the temptation of max their own benefits
Conglomerate intergartion
The merger of firms witrh no common connection
Horizontal intergration
Merger of firms in the same industry at the same stage of production
Vertical intergration
when a firm merges or takes over another firm in the same industry but at a diff stage of production
diversification
Firms grow by expanding their production ^ output, widening their customer base, developing a new product or diversifying their range
TC
The cost to produce a given level of output
TFC
Cost which don’t vary with output
TVC
Costs that change with Output
AC/ATC
the cost of production per unit
Sunk costs
costs that can’t be recovered once they have been spent eg. Advertising, labour costs
Law of diminishing returns
if a variable factor is ^ when another factor is fixed, there will be a point where each extra unit of the v factor will produce less extra output than the previous unit. after a certain point, marginal output falls
Internal EoS
advantage that a firm is able to enjoy because of growth in the firm, independent of anything happening to other firms or the industry in general
External EoS
An advantage which arises from the growth of the industry within which the firm operates, independent of the firm itself
Eos
Advantages of large scale production that enable large buis to produce at a lower av cost than the smaller buis
diseconomies of scale
disadvantage when large buis reduce efficiency and cause AC to rise
Increasing returns to scale
^ in inputs by a certain proportion will lead to ^ in output by a larger proportion
Decreasing returns to scale
^ in inputs by a certain proportion will lead to ^ in output by a a smaller proportion
Constant returns to scale
Output ^ by same proportion that input ^ by
min efficient scale
lowest level of output necessary to fully exploit EoS
TR
Revenue generated from the scale of a given level of output
AR
the price of each unit sold
loss
when rev doesn’t occur
Accounting profit
total monetary revenue minus total monetary costs
Supernormal profit
above normal profit TR>TC
Normal profit
min reward required to keep entrepeneurs supplying their enterprise, the return sufficient to keep FoP committed to the business
TR=TC
Economic profit
profit which considers the op cost of production as well as the monetary cost
why firms profit maximisation
Reinvestment- form of new tech, R&D, innovation
dividends (share of profit)for shareholders
lower costs& lower prices for customers
reward entrepreneurship
Why firms may not profit max
have no knowledge of their MC&MR
to avoid scrutiny from competition authorities/regulators, they may investigate the business
key stakeholders could be harmed
other objs may be more appropriate
Benefits of Revenue max
EoS- Revenue max quantity is greater than the profit max quantity
predatory pricing- Reva max price is lower than profit max price, firm undercuts rival, sacrificing profit to drive out competitors
Principle agent problem- Divorce between ownership and control
why would firms use Sales/Growth maximisation
AC=AR
-EoS
-limit pricing, takes away incentive for other firms to enter market thus limiting competition
- Principle agent problem, divorce between ownership and control. Managers may use growth to help get them perks
-Flood the market, increases awareness of product so develops loyalty to product
