Firm Objectives

Question 0

Why may a firm profit maximise?

Answer 0

• Shareholder pressure for dividends
• Shareholder pressure for share value
• Stock market valuation

Question 1

Profit Maximisation

Answer 1

When a firm is producing at a level where marginal cost = marginal revenue.

Question 2

Revenue Maximisation

Answer 2

When a firm is producing at a level where marginal revenue = zero.

Question 3

Sales Maximisation

Answer 3

When a firm is producing at a level where it just breaks even, where total revenue equals total costs.

Question 4

Profit Satisficing

Answer 4

When a firm makes just enough profit to satisfy shareholders whilst managers maximise their own benefits e.g. salary, perks etc.

Question 5

Limit Pricing

Answer 5

When a firm sets a low enough price to deter new entrants from coming into its market.

Question 6

Predatory Pricing

Answer 6

A firm driving its price down to force a competitor out of the market and then putting them up again once this objective has been achieved.

Question 7

Price leadership

Answer 7

Price leadership occurs when one firm has a clear dominant position in the market and the firms with lower market shares follow the pricing changes promoted by the dominant firm.

Question 8

Why might a business depart from profit maximisation?

Answer 8

• Imperfect Information

- Multi-product Business