Business Objectives Flashcards
1
Q
What is profit maximising and when does it occur
A
- profit maximising is when firms aim to maximise the amount of profits they earn by maximising revenue and lowering costs
- occurs at MC=MR
2
Q
Why do firms pursue profit maximising -
A
- reinvestment -> capital and organic growth
- greater dividends for share holders
- reward for entrepreneurship
- lower costs
3
Q
Why do firms decide not to pursue profit max
A
- other objectives are more suitable
- harms stakeholders such as consumers, government, environmental groups
- some firms do not have knowledge of mc and mr
- want to avoid scrutiny -> high profits warrants investigation
4
Q
What is profit saticificing
A
Profit satisfacing is when firms sacrifice profits in order to satisfy stake holders
5
Q
What are stakeholders
A
- any person who is affected by the choices of businesses
6
Q
What is revenue maximising and when does this occur
A
When firms aim to maximise revenue
- occurs when MR =0
7
Q
Why do firms choose to revenue max
A
- economies of scale -> increasing output
- principle agent probelm -> managers use revenue as leverage
- predatory pricing
8
Q
What is sales maximisation when does this occur
A
- sales maximisation si when firms aim to maximise sales in order to maximise growth
Occurs at AC=AR -> normal profits
9
Q
Why do firms sales maximise (Costa)
A
- economies of scale
- limit pricing and acts as a barrier to entry
- leverage (oricinple agent probelm)
- flood the marker -> consumers become more familiar and develop loyalty (Costa)
10
Q
What are some other objectives
A
- survival
- maximise society surplus
