Business objectives Flashcards
Define the term stakeholder
Someone who has an interest in business activity
State examples of stakeholders
managers, employees, shareholders, consumers, suppliers, local communities, banks/creditors, government, competitors , pressure groups.
What is divorce between ownership and control
owners of the business and managers are different.
When many divorce between ownership and control occur
When the business gets older - original owners may die , if the business gets sold , when the business grows and there are more managers needed
When many divorce between ownership and control occur
When the business gets older - original owners may die , if the business gets sold , when the business grows and there are more managers needed
How can workers exert pressure on firms to make them operate in a certain way
Trade unions - influence wages ,health and safety
they can threaten the firm with class actions
How can the government effect the activity of a business
Laws and regulation - on environment , consumers to prevent exploitation
How can the government effect the activity of a business
Laws and regulation- on environment , consumers to prevent exploitation
e.g taxes on demerit goods
What is consumer sovereignty
When resources are allocated based on consumer preference.
How can firms manipulate consumers behaviour
Can make them less rational through advertising and marketing
Through sales
Restricting output of goods
where does profit maximisation occur
MR = MC
What are the advantages of operating at MR=MC
Can generate SNP - can be reinvested , can make production cost lower
economies of scale can be gained - more SNP in the future . Can benefit stake holders more ( more dividends to shareholders , potentially more pay to employees)
When might firms still remain in the market in the long run if they’re making a loss , and cant
firms might not leave the market even though they’re not covering their costs of production as other firms in the market may also be leaving . If they can hold throughout this period of time then later on in the future they might be able to cover their costs and make a SNP
cover their cost of production
What is the principle-agent problem between shareholders and managers
asymmetric information
Shareholders -Short run profits
Profit maximisation for a higher dividends payment and also to see their share price increase
Managers - Revenue maximisation to maximise their utility - to gain higher wages and bigger bonuses
Why might firms profit satisfice
Making enough profit to keep all stakeholders happy
shareholders are still getting payed dividends meaning for managers theyre less likely to get fired.
