business aims and objectives 2

Question 1

Profit maximisation

Answer 1

this means producing at the level of the output where there is the greatest positive difference between total revenue and total costs

Question 2

What does profit maximisation reward

Answer 2

Investors (owners of the business)

Question 3

shareholder/stakeholder conflict

Answer 3

Profit maximisation will be the preferred objective of the owners and shareholders. But other stakeholders will consider other issues to be more important
This conflict is sometimes called the shareholder/stakeholder conflict

Question 4

Profit satisfacing

Answer 4

This involves aiming to achieve enough profit to keep the owners happy but not aiming to work as much as possible to earn as much profit as possible
This is common among small businesses
Owners may choose this objective if they have other priorities e.g. family, hobbies etc

Question 5

business growth

Answer 5

The growth of a business might be measured in sales or value of output
There are lots of benefits to a business growing – potential increased profits
They benefit from economies of scale
This objective forces business to be competitive
However, rapid expansion can lead to a shortage of working capital
Growth into new areas can divert the focus and direction of the business away from its core areas

Question 6

Increasing market share

Answer 6

This is linked to the growth of the business
Increasing the market share of the business means adapting a marketing mix that is more effective than that of the business’ s competitors
Businesses with this objective aim to be the brand leader
The brand leader benefits as retailers will want to stock their product
Promotional campaigns can be built around the fact that the business is the brand leader

Question 7

survival of businesses

Answer 7

This is often the key objective for new business start-ups
New businesses have a high failure rate in their first 2 years
Businesses will focus on this objective for a couple of years before establishing other objectives

Question 8

Maximising short-term sales revenue

Answer 8

This may be an objective of the business if managers/employees salaries & bonus payments are linked to the sales revenue levels.
This may not be a good thing – a business may have to reduce its prices in order to increase sales.
This may in fact reduce profits!

Question 9

maximisng shareholder value

Answer 9

This objective seeks to increase the share price of the company and to pay as much dividends (portion of profit paid to the owners as a return on their investment) to the owners (shareholders) as possible.
A company may have this aim along with profit maximisation.
A business with this aim puts shareholders above other stakeholders.

Question 10

What are stakeholders

Answer 10

A stakeholder is anyone who has an interest in or is affected by a decision taken by a business
A business with CSR as an objective takes into account all stakeholders