Business Objectives Flashcards

1
Q

Why would firms profit maximise

A

to maximise the benefits of the owners or shareholders or act in their interests

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2
Q

What else can be achieved with short run profit maximisation

A
  • Generate funds for reinvestment
  • retained profits can help in recession
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3
Q

What is the short run profit maximisation position

A

MC = MR

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4
Q

what does MC = MR mean

A

when the cost of producing another good is the same as the revenue that good brings in

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5
Q

Where is the output and price determined on the profit maximising graph

A

output is the line drawn up from MC=MR where it meets AR, the horizontal line from AR is where price is

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6
Q

Why would firms Revenue Maximise

A
  • 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
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7
Q

Who aims for revenue maximisation to ensure market dominance

A

Amazon

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8
Q

What is the revenue maximisation position

A

`MR=0

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9
Q

How can revenue maximisation be seen on the graph

A

MR=0 shows a higher output and lower price which suggests the firm is selling as much as possible to maximise revenue

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10
Q

Sales Maximisation

A

Is an objective that is focused on growing the company

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11
Q

Why do firms sales maximise

A
  • 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
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12
Q

is sales maximising short term or long term

A

short

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13
Q

What is the sales maximising position

A

AC=AR

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14
Q

why is the sales maximising position AC=AR

A

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

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15
Q

What is the primary problem with sales and revenue maximising

A

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

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16
Q

Why will firms profit satisfice

A

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

17
Q

What is the long term objective of all business objectives

A

profit maximising

18
Q

Managerial utility maximisation

A

Managers only make decisions to maximise their own satisfaction, but this is dependent on many other factors like wages and profit

19
Q

Marginal cost pricing

A

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

20
Q

Alternative Business objectives

A
  • 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