LS6 - Business Objectives

Question 1

Profit Maximisation

Answer 1

Pros
* Happens at MC=MR
* Allows firms to reinvest to boost productivity
* Pay shareholders with dividends
* Lower cost –> lower prices
* Reward for entrepenuership

Cons
- No knowledge of MC, MR
- Greater scrutiny - more regulations/investigations which reduces rev and increases costs
- Key stakeholders harmed

Question 2

Revenue Maximisation

Answer 2

• EoS
• Predatory pricing/limit pricing - push out comp
• Principal-Agent - Agent can use boost in rev to advantage
• Happens at MR=0
• Build market share, brand loyalty

Question 3

Sales Maximisation

Answer 3

• EoS
• Limit pricing
• Principal-Agent leverage
• Flood the market - boost consumer attention and brand loyalty
• Happens at AC=AR

Question 4

Satisficing

Answer 4

• Sacrificing profit to satisfy as many stakeholders as possible
• +Shareholders and managers
• -Consumer, workers, environmental groups - as it increases costs, wages dont improve and resources depleted

Question 5

Other Objectives

Answer 5

1. Survival - short-run objective to survive in hyper-competitive market, build brand loyalty in short term then grow
2. Public Sector Org - maximise society interest/welfare –> at D = S => P = MC, decreasing price, increasing quantity and welfare
3. Corporate Social Responsibility - giving to charity, producing sustainably to protect environment - avoiding excessive polluting activities; ethical and good working conditions