Business Objectives Flashcards
Why would firms profit maximise
to maximise the benefits of the owners or shareholders or act in their interests
What else can be achieved with short run profit maximisation
- Generate funds for reinvestment
- retained profits can help in recession
What is the short run profit maximisation position
MC = MR
what does MC = MR mean
when the cost of producing another good is the same as the revenue that good brings in
Where is the output and price determined on the profit maximising graph
output is the line drawn up from MC=MR where it meets AR, the horizontal line from AR is where price is
Why would firms Revenue Maximise
- Maximises managers salaries as it is either directly connected or more sales makes them look better
- Falls in revenue are bad as suggest the company is worse and may result in layoffs or selling capital
Who aims for revenue maximisation to ensure market dominance
Amazon
What is the revenue maximisation position
`MR=0
How can revenue maximisation be seen on the graph
MR=0 shows a higher output and lower price which suggests the firm is selling as much as possible to maximise revenue
Sales Maximisation
Is an objective that is focused on growing the company
Why do firms sales maximise
- larger firms have more security and can survive economic shocks
- growth increases market share giving more market power increasing their competitiveness
- easier to judge level of growth than profit
is sales maximising short term or long term
short
What is the sales maximising position
AC=AR
why is the sales maximising position AC=AR
The highest possible level of sales whilst keeping sufficient returns to keep the owner happy so will aim for normal profit where costs and revenue cancel out
What is the primary problem with sales and revenue maximising
They necessitate a fall in price which other firms will most likely copy so there will be no change to revenue as they won’t be selling more because of a lower price
Why will firms profit satisfice
Due to the PA problem managers and owners have different goals so managers will profit enough to satisfy owners whilst following their other objectives like paying employees decent wages
What is the long term objective of all business objectives
profit maximising
Managerial utility maximisation
Managers only make decisions to maximise their own satisfaction, but this is dependent on many other factors like wages and profit
Marginal cost pricing
This aims for allocative efficiency as it aims to maximise social welfare by producing at MC=AR, so value of good to society equals the cost of producing it, done by nationalised industries
Alternative Business objectives
- Protect the environment, sustainable production, ESG
- CSR focuses on benefitting all stakeholders not just generating profit
- not for profit firms aim to provide a good or service to maximise social welfare
