Business objectives

Question 1

So far in the course, we’ve assumed that firms want to:

Answer 1

maximise profits, where MC = MR

Question 2

At launch, each PS3 was sold for a price or average revenue of £400 - but Sony only just made a normal profit at this price because:

Answer 2

Sony’s AR = AC

Question 3

Revenue maximisation

Answer 3

Where MR = 0.

Usually done when firms want more market share

Question 4

Sales maximisation

Answer 4

When a firm maximises its sales without making a loss, where AC = AR.

Question 5

Profit satisficing

Answer 5

Profit satisficing is when a company makes enough profit to satisfy its influencers, but then pursues other objectives (social, environmental, personal).

Question 6

A firm with monopoly power increases its output up to the level where it just making normal profit. Which of the following is its most likely objective?

Answer 6

Sales maximisation

Question 7

Toms is a shoe company that gives a pair of shoes to a child in need every time someone purchases one of their shoes. What is this most likely to be an example of?

Answer 7

Profit satisficing is when a company makes enough profit to satisfy its influencers: enough profit for shareholders to be happy with their return; enough profit to pay workers a good wage. In the case of Toms, they are making enough profit to satisfy their influencers but beyond that their objectives are ethical in terms of helping people in need.

Question 8

A new boy band releases an album. Initially they sell at a price and quantity where they will maximise profit. After three months, they move to a price and quantity where they will maximise sales. Which of the following statements is most likely to be true?

Answer 8

Moving from profit maximising (MC = MR) to sales maximising (AC = AR) will reduce the price and increase the quantity. However, sales maximising won’t help to increase profit for an advertising campaign as normal profit is being made at the sales maximising level of output.