LS6- Business Objectives Flashcards
1
Q
When does revenue maximisation occur?
A
When MR = 0
2
Q
Why revenue maximise?
A
- EoS
- Predatory pricing (undercutting rivalry prices to boost market share)
- Divorce of ownership and control, principal-agent problem
3
Q
Where does sales maximisation occur?
A
AC = AR
* where TR only just covers TC, breaks even
4
Q
Why sales maximise
A
- EoS
- Limit pricing to disincentivise new firms entering the market
- Divorce of ownership and control, PA problem (managerial utility maximisation)
- Flooding the market to raise bran awareness and develop brand loyalty
5
Q
What is satisficing?
A
- Firms trying to achieve satisfactory rather than optimal results
- Firm aims for satisfactory level of profit or other objectives, rather than maximising it, often due to constraints like limited information or conflicting objectives
6
Q
What is satisficing?
A
- Firms trying to achieve satisfactory rather than optimal results
- Firm aims for satisfactory level of profit or other objectives, rather than maximising it, often due to constraints like limited information or conflicting objectives
7
Q
Profit satisficing
A
- Sacrificing profit to satisfy as many key stakeholders as possible
8
Q
Where does profit maximisation occur?
A
MC = MR
9
Q
Why might a business not want to profit maximise?
A
- Don’t know their MC = MR (profit maximising level of output)
- Greater scrutiny/investigation by regulators
- key stakeholders harmed
10
Q
Incentives for firms to pursue corporate social responsibility
A
- Socially irresponsible firms = negative image of firms held by workers and consumers -> fall in firms revenues/profits and lowered worker productivity
- Also = increased gov. regulation
11
Q
Examples of corporate social responsibility
A
- Avoidance of polluting activities
- Support for human rights
- Arts and athletics sponsorships
- Donations to charities
