Microeconomics - The objectives of firms Flashcards
Where does profit maximisation occur
where mc = mr
Why do some firms choose to profit maximise
o It provides greater wages and dividends for entrepreneurs
o Retained profits are a cheap source of finance, which saves paying high interest rates on loans
o In the short run, the interests of the owners or shareholders are most important, since they aim to maximise their gain from the company.
o Some firms might profit maximise in the long run since consumers do not like rapid price changes in the short run, so this will provide a stable price and output.
Other possible objectives of a firm
Survival
Growth
Increasing their market share
Quality
Maximising sales revenue
Sales maximisation
Satisficing principle (earning enough to keep shareholders happy)
Draw the monopoly diagram showing profit maximisation and sales maximisation points
..
