Econ Theme 3 - Business Objectives +Growth Flashcards
Influencers of the firm
- Shareholders/owners (profit maximise)
-directors (sales maximise)
-workers (good working conditions, job security, high wages)
-consumers (good customer service/quality , low prices, environmental/social causes)
Revenue Maximisation
MR = 0
no additional revenue to be gained
market share increased
take over market in LR
managers increase their prestige by working for bigger firm
Sales maximisation
Price = AC
maximises sales without making a loss
managers might sales maximise if sales are linked too their bonuses
Profit Satisficing
Make enough profit to satisfy all their influencers but then pursues other objectives
Reasons to grow firm/stay small
+ make more sales and profit
- Don’t have finance to grow
+ increase market power
- regulations (3+O2)
+ diversify, enjoy risk-bearing economies
- Niche markets (not enough consumers)
+Eos
- Doe
+ owner’s objectives
- profit-satifice (flappy bird)
Divorce of ownership and control
when the managers of a firm are different from the owners of the firm
principal agent problems
when the agent (e.g. the manager) pursues different objectives to the principal (e.g. the shareholders)
Different types of firms
Public sector - owned by government
Private sector - owned by private individuals
Organic Growth
- grows by investing in itself and increasing its output
e.g: - Using own profit
- selling shares to shareholder
- Borrowing money
Inorganic Growth
firms grows by merging with or acquiring another firm
- backward vertical integration
- forward vertical integration
- horizontal integration
- conglomerate integration
forward Vertical integration
A firm integrates with another firm who is closer to the consumer in the same production process
e.g ford - show room
horizontal integration
A firm integrates with another firm at the same stage of the production process
e.g. t-mobile and orange = EE
Conglomerate integration
Conglomerate integration is when two firms in unrelated industries join together.
e.g. pepsi and Quaker Oats
backward vertical integration
backward -
A firm integrates with another firm who is further away from the consumer in the same production process
e.g. ford - tyre manufacturer
organic growth (+/-)
+ Keep ownership/ control of company
- Lose ownership / control (selling shares /franchise)
+ Low risk
- slower growth
Vertical Integration (+/-)
+ control of supply chain
- regulation
+ reduce intermediary costs
- cost from DoE/ acquisition costs
+ better access to raw material/consumers
- may lack expertise
Horizontal Integration (+/-)
+ Internal EoS
- Internal DoE
+ Rationalisation
- Job losses
+ Reduced competition
- Brand Dilution
Conglomerate Integration (+/-)
+ Internal EoS (Risk-bearing)
- Internal DoE
+ Increased brand awareness
- Brand Dilution
+ knowledge transfers
- lack expertise
Demergers reasons
- Specialisation
- sell one of the divisions to raise money
- reduces DoE
- cultural differences
e.g. Fiat - car/truck business
Demergers (+/-) - workers
+ reducing cultural conflicts
- lower job security
Demergers (+/-) - consumers
+ lower prices/ increasing quality
- reduces Eos = Increasing prices
