Business Objectives Flashcards
When does revenue maximisation occur
Marginal revenue = 0
When does sales maximisation occur
Producing the largest amount possible consistent with earning normal profits
What is satisfying behaviour
It involves the ownership of a business (shareholders) setting minimum acceptable levels of achievement in terms of revenue and profitability
Why may businesses have different objectives
- managerial objectives
- time constraints
- small businesses / start ups have different aims to larger firms
- state-owned corporations
How do maximisers behave
In traditional economic way and always try to make the best possible choice from the available alternatives
How do satisficers behave
They examine only a limited set of alternatives, and choose the best between them
Who is likely to be a satisficer
Managers of a business - more concerned with increasing revenue / market share than pure profit maximisation
Why do many businesses aim to maximise revenue
- salaries / perks more closely linked to sales revenue
- can make use of price discrimination
- deter away other businesses
Consequence of a firm deciding to maximise sales revenues rather than profits
Reduction in the price of firm’s shares since profit is likely to be lower
Who argues that maximising revenue is better than profits
William Baumol
When does sales maximisation occur
When a business maximises output without making s loss
Where does sales maximisation occur
Output where AR = AC
Where does profit satisficing occur
There is not one specific output - anywhere between profit maximisation and sales maximisation
Are most commercial businesses profit seekers
Yes - not profit maximisers
What is the most common approach to business objectives that businesses take across markets
Satisficing
