Business objectives Flashcards
What is the main goal for most firms?
Profit maximisation
What is profit?
The difference between total revenue and total costs. It is the reward entrepreneurs get for taking risk
When do firms break even
When total revenue = total costs
When does profit maximisation occur?
When marginal cost = marginal revenue. The extra unit produces yields niether loss nor profit
What is marginal cost?
The extra cost of producing one more unit of output
What is marginal revenue?
The revenue gained from selling one more unit of output
What is sales maximisation?
This is where the firm aims to sell as much of their goods and services as possible without making a loss. It is the point where average costs = average revenue
Which type of firm often aims for profit maximisation?
Not-for-profit-organisations
What is profit satisficing?
Earning just enough profits to keep its shareholders happy
Why do shareholders want profits?
Because it increases their share prices and causes their dividend payout to rise
Why might managers not aim for profit maximisation?
Their personal reward from high profits is less than that of shareholders
When does satisficing generally occur?
When there is a divorce of ownership and control
What is survival?
This is a short-term view where the firm aims to break-even and even tolerate losses
What kind of firm will aim for survival in particular?
New firms entering competitive markets
When might firms make survival their objective?
During a recession
Why might firms sell at a loss in the short run?
To maintain their market position
Why is market share advantageous?
It increases a firms chance of surviving in the market
How can a high market share be achieved?
Through sales maximisation
Why is cost effiency beneficial?
It lowers average costs - giving the firm a competitive advantage, as they can afford to charge customers less
Which firms need to focus especially hard on cost efficiency?
Those in competitive markets
Why might firms try to make sure their employees are well looked after?
When employees are happy, they are more likely to be productive and do a good job. It also increases loyalty towards the employer, therefore decreasing staff turnover
Why do many firms aim for customer satisfaction?
If firms gain a repuation for high quality goods, they can charge higher prices, since consumers might be willing to pay more for them
What are the 3 basic economic agents?
Producers, consumers and governments
