Business Objectives Flashcards
What are some ways to grow a business?
Profit maximisation
Revenue maximisation
Sales maximisation
Statisficing
What is profit maximisation?
Profits are maximised at an output level where marginal costs = marginal revenue. (Mc=MR)
What is revenue maximisation?
Revenues are maximised at an output where marginal revenue = 0
What is sales maximisation?
Supplying the largest output possible consistent with earning at least normal profits where AR= AC
What is statisficing behaviour?
Statisficing involves the owners of a business setting minimum acceptable levels of achievement of either revenues or operating profits.
What are some reasons for growth for managers?
Revenue or sales growth is otften preferred instead of profit maximisation
Achieve a satisfactory profit/return to shareholders to reward risk-taking
What are the reasons for growth for information gap?
Lack of accurate information on marginal cots and revenues in their markets
Cost-plus pricing is a common tactic
What is the reasons for growth for small businesses?
Many small firs are “life-style businesses” for owners
Start-ups often target rapid growth users rather than profits
What is the reason for growth for state owned cooperations?
They are likely to have a range of different economic and political objectives
What is profit maximisation?
It occurs when marginal revenue = marginal cost MR=MC
What are the benefits of aiming to profit maximise?
Shareholders are likely to benefit from higher dividends
Employees may gain
May lead to increased capital investment
Provides a safety net incase of rough times or recession
What are the drawbacks of aiming to profit maximise?
Higher price for final consumers
High profits may incentive new firms to enter the market
If profits are increased because of lower costs could impact quality.
Why may businesses chose to revenue maximise?
To deter profitable entry of new firms/rivals into market
