Chapter 3.1 - Objectives of Firms

Question 1

What objectives do firms have?

Answer 1

1. Profit maximisation
2. Revenue maximisation
3. Sales maximisation
4. Profit satisficing
5. Growth
6. Economies of scale
7. Competitive advantage
8. Market leadership
9. Higher profits
10. Normal profits
11. Survival

Question 2

On a cost and revenue diagram, what point shows:

i) profit maximisation
ii) revenue maximisation
iii) sales maximisation
iv) productive efficiency
v) allocative efficiency

Answer 2

i) profit maximisation: MR=MC
ii) revenue maximisation: MR=0
iii) sales maximisation: AR=AC
iv) productive efficiency: MC=AC
v) allocative efficiency: MC=AR

Question 3

What does AR=AC indicate?

Answer 3

Sales maximisation (normal profits)

Question 4

Define ‘profit satisficing’.

Answer 4

Profit satisficing is where firms make some level of profit enough to satisfy the shareholders and keep stakeholders happy.