Business objectives Flashcards
Profit maximisation is…
Important objective for most firms, maximising projects
How is profit calculated?
Difference between total revenue and total cost
When do firms break even?
When TR=TC
When does profit maximisation occur ?
When MC=MR
Why do firms choose to profit maximise?
Provides greater wages and dividends, In the short term interests of the owners or shareholders are most important
Normal Profit is …
Minimum reward required to keep entrepreneurs supplying their enterprise, When TR=TC
What is supernormal profit ?
Is the profit above normal profit when TR>TC
Sales revenue maximisation…
When MR=0 each extra unit sold generates no extra revenue
What is sales volume maximisation?
When the firm aims to sell as much of their goods and services as possible without making a loss, Where AC=AR
What is Growth maximisation?
Some firms may want to increase the size of their firm , they could grow by expanding their product or investment in R and D
They could also Grow the firm by …
Increasing market share
What is utility maximisation?
Consumers aim to generate the greatest utility possible from an economic decision
What’s is profit satisficing
(Non maximising objective) ?
Earning just enough profits to keep shareholders happy , if they have other objectives
Social welfare and CSR …
Some firms might take responsibility for consequences on the environment and aim to maximise social welfare
What is the principal agent problem ?
Linked to asymmetric information. This is when the agent makes a decision for the principal but the agent is inclined to act in their own interests for example manager and shareholder have different objectives
What does the kinked demand curve show ?
Illustrates the feature of price stability in an oligopoly, It is an illustration of interdependence between firms
What is game theory ?
Related to the concept of interdependence between firms in a oligopoly and is used to predict the outcome of a decision made by one firm when it has incomplete information about the other
