Business Objectives Flashcards
What are the main influencers of a firm?
Owners, shareholders, directors & managers, workers and consumers
When will directors/managers produce?
When marginal revenue = 0. When MR = 0 there’s no more additional revenue to be gained meaning revenue is maximised
What does revenue maximisation do?
Increases firms market share meaning bigger profits in the long run and managers/directors increase their prestige by increasing their company size
What is sales maximisation?
When a firm maximises its sales without making a loss. The condition for this is AR (average revenue) =ATC (average total cost)
What is (profit) satisficing
When a company makes enough profit to satisfy its influencers, enough profit to keep shareholders happy, enough profit to pay workers a good wage
What are workers objectives?
Workers want higher wages, job security and improved working conditions
What are directors/managers objectives?
Directors and managers usually look to maximise sales or revenue.
Maximising sales increases their sales bonus and maximising revenue increases company size, boosting their prestige
What are shareholders objectives?
Shareholders usually look to maximise profit.
What are consumers objectives?
Consumers want lower prices, better customer service and quality, and they also care about social and environmental causes (e.g. homeless people and polar bears)
We assume that firms want to…
Maximise profits where MC (marginal cost) = MR (marginal revenue)
What is profit maximisation?
Profit maximisation is where marginal cost equals marginal revenue.
If MC = MR then the firm will break even on the final unit of output produced.
What is revenue maximisation?
Where a firm attempts to sell at a price which achieves the greatest sales revenue. Where MR=0
Formula for total revenue?
P (price) x Q (quantity)
Formula for average revenue?
TR (total revenue) / Quantity
Formula for marginal revenue?
Change in TR (total revenue) / Change in Q (quantity)
