Business Objectives Flashcards
Benefits of profit maximisation
Re-investment
Dividends
Lower Costs and therefore Lower Prices
Reward of Entrepreneurship
Where does prrofit max occur ?
When MC = MR
Why don’t businesses always profit maximise?
No knowledge of MC=MR
Greater scrutiny of business practice
Key Stakeholders may be harmed
Other Objectives more appropriate
Profit Satisficing
Sacrificing profit to satisfy as many key stakeholders as possible
Who benefits from profit satisficing?
Shareholders
Managers
Who suffers from profit satisficing?
Consumers
Workers
Government
Environmental Groups
Possible repercussions of satisficing?
Lower sales from bad rep.
Workers can strike
Government investigations
Protests from Env. Groups
Revenue Maximisation
When MR is 0
Benefits of Revenue Maximsation
Greater EoS
Predatory Pricing
Principle Agent Problem
Sales/Growth Maximisation
When AC=AR
Benefits of Sales Maximisation
EoS
Limit Pricing
Principle Agent Problem
Flood the market
Why is limit pricing a benefit?
By pricing at breakeven, competitors cannot hope to compete therefore don’t enter the market.
Why is flooding the market a benefit?
Free advertising as your products will be everywhere, consumers develop a loyalty.
Survival
Companies may operate at a loss to simply last a period of time to finally start making a profit.
Public Sector Organisations
Always aim to produce at MC=P
Maximise Society Welfare
To keep prices low
