Buisness Objectives Flashcards
Definition of business objectives
The reasons behind the decisions firm take
Define profit maximisation
Main assumption for firms to achieve the highest level of profits possible: where MR:MC
Define sales maximisation
Producing where AR=AC, highest possible output a firm can sustain in the Long run
Define revenue maximisation
Producing where MR=O, keep producing more output as long as it adds to revenue
Define Marginal analysis
An examination of effect in current situation
Law of diminishing returns
in the DR when variable FoP are added to a stock of fixed FoP, total/marginal product will initially rise then fall
Explicit costs
costs that require actual payments eg, fixed and variable
Implicit costs
Opportunity costs
Fixed costs definition
do not vary with output
Variable costs
costs that vary with output
Fixed costs examples
advertising, salaries, rent, loans, interest, business rates
Variable costs examples
Wages, utility bills, Raw material costs, transport goods
TFC equation
TFC=TC-TVC or AFCxQ
AFC equation
TFC/ Q or AC-AVC
MC equation
Change in TC/ Change in Q
AC equation
TC/ Q
TC equation
TFC+TVC
how to calculate increasing returns to scale
% change output> % change in inputs
Minimum efficient scale
lowest level of output required to exploit full economies of scale
Economies of scale def
a reduction in LRAC as output increases
Two groups of EoS
internal EoS and External Eos
What is internal Eos
within a business’s control, a business can exploit them as they get larger
Internal EoS
Risk bearing
Financial
Managerial
Technical
Marketing
Purchasing
