Business Objectives Flashcards
At what point is profit maximised?
MC = MR
Why would a firm not work at profit max?
- It chooses not to profit max
2. It is not able to profit max
What are the 4 different profit objectives
- Profit Max
- Revenue Max
- Sales Max
- Satisficing
What point is Revenue max
MR = 0
Why would a firm opt for revenue max (2)
- Market share and brand loyalty (brand will grow as market share increases)
- Manager’s objective being different to owner’s objectives (principal-agent problem e.g., benefits for sales, hard to figure out profits)
What scenarios is the principal-agent problem more likely to occur?
- Size of firm
- Owner part of management
- Technical knowledge
- Access to data
Why does the size of the firm effect the PA problem? (2)
- Individuals feel insignificant so can get away with slacking more
- Small cog won’t make a big difference
Why does the owners part in the management effect the PA problem? (3)
- Have more of a say as to what the firm is doing
- Shareholders have no say whatsoever
- Publicly listed companies: Stocks being bought + sold all the time, owners aren’t interested/don’t have power
Why does technical knowledge effect the PA problem? (1)
- If the principal has expertise in a field they can make sure the company is working in their best interest
Why does access to data effect the PA problem? (1)
- Ease of figuring out the numbers means that profit/slack can be tracked and monitored
What point is sales max?
AR = AC (would run at AR=0 but but they would be making a loss)
Why would a firm opt for sales max? (3)
- Market share + brand loyalty (gets the name out there)
- Charities: selling most possible, get the ‘stuff out there’ (don’t want excess money)
- Sustainability + good jobs for people
What is Satisficing?
‘To decide on and pursue a course of action that will satisfy the minimum requirements necessary to achieve a particular goal.’
What is Profit Satisficing?
Enough profit to satisfy owners/shareholders, BUT not profit maximising
