LS6 - Business Objectives

Question 1

What are business objectives a firm may pursue?

Answer 1

Profit maximisation as previously discussed
profit maximisation
sales maximisatiion

Question 2

What did William Baumol argue about managers’ objectives?

Answer 2

Managers may aim to maximise revenue.

Question 3

At what point is total revenue maximised?

Answer 3

Total revenue is maximised at the peak of the TR curve where marginal revenue (MR) equals zero.

Question 4

see onenote for fig 1 revenue maximisation and analysis of diagram

Question 5

What is the result of revenue maximisation compared to profit maximisation?

Answer 5

A revenue-maximising firm produces more output and charges a lower price than a profit-maximising firm.

Question 6

How might shareholders respond to revenue maximisation?

Answer 6

Shareholders might insist on a minimum level of profits, leading to a compromise between profit and revenue maximisation.

Question 7

What is sales maximisation?

Answer 7

Managers may focus on the volume of sales rather than revenue, pushing output to the point where total revenue just covers total cost (break-even point). The managers are likely to have much better information about the market conditions and the internal functioning of the firm than the shareholders, who view the firm only remotely

Question 8

At what point does sales maximisation occur?

Answer 8

At the break-even point where average cost equals average revenue.

Question 9

What is managerial utility maximisation?

Answer 9

Managers pursue their own utility through increased salaries, fringe benefits, more staff, and investment in preferred projects.

these decisions can cut into profits

fringe benefits can be company cars or expense accounts

Question 10

What is satisficing?

Answer 10

Usually (large) firms pursue satisfactory rather than optimal results, balancing multiple objectives of different groups within the firm. rather than maximising one objective.

This is because all the seperate entities within a firm have individual variables which each seeks to maximise. These may conflic hence, it is unsatisfactory to maximise only one.

Question 11

What is corporate social responsibility (CSR)?

Answer 11

Firms engage in activities that benefit society and the environment, such as avoiding pollution, supporting human rights, and donating to charities.

Question 12

Why might firms engage in CSR?

Answer 12

To avoid a negative image (which could), increase worker productivity, boost sales, and avoid government regulation.

Question 13

How can unethical behavior affect a firm?

Answer 13

It can lower worker productivity, reduce sales, and invite government regulation, ultimately cutting into profits.

Question 14

What are some forms of socially responsible activities firms can engage in?

Answer 14

• Avoiding pollution
• engaging in environmentally sound practices
• supporting human rights (avioding child labour for example)
• sponsoring arts and athletics
• donating to charities.

Question 15

How has consumer awareness affected CSR?

Answer 15

Increased consumer awareness and concern over ethical and environmental issues have led to consumer activism and boycotts of offending firms.

Question 16

What is the debate about CSR and profits?

Answer 16

Economists have debated whether ethical and environmentally responsible behavior increases or decreases profits, with studies showing inconclusive results.

The decreased profits side of the argument focuses on the cost aspect of profits cheap child labour means lower costs, and hence higher profits than firms avoiding such practices.

the increased profits side of the argument focuses on revenues. If consumers avoid buying the products of offending firms, revenues will decline and profits will go down in spite of the lower costs.