Business objectives 3.2

Question 1

Profit maximisation

Answer 1

Objective:
-Earn the highest possible level of net income

Reason:
-Provides financial return to shareholders
-Attracts investors and capital
-Indicates efficient resource allocation
-Indicates cost control

e.g. Apple/ pharmaceutical companies - want to re-invest

Formula:
Profit = total revenue - total cost

Point:
MC=MR

Question 2

Revenue maximisation

Answer 2

Objective:
-Maximise total revenue from the sales of goods and services

Reasons:
-Focus on increasing market share and customer base
-Can lead to higher profits in the long-run if accompanied by cost control
-Justification for managerial rewards

e.g. Amazon - want to dominate the market

Formula:
TR = price x quantity sold

Point:
MR=0

Question 3

Sales maximising

Answer 3

Objective: Maximise number of units sold, regardless of profits

Reasons:
-Competition is intense and market share is crucial - increase size
-Maintain dominant market position
-Strategic choice to deter new entrants
-Size is linked to security
-Generally a short term strategy

-e.g. Netflix and Spotify - to increase size of business

Formula:
Sales=market demand

Point:
AC=AR

Question 4

Satisficing

Answer 4

Objective: Achieving a satisfactory level of profit/ performance, rather than maximising it - often due to the principal agent problem

Reasons:
-May prioritise other goals - employee satisfaction, long-term sustainability
-Reduced pressure of continuously pushing for higher profits