Motives for firms and loss minimisation Flashcards
What is the formula for profit maximisation?
MC=MR
What does this graph show?
revenue maximisation
3 reasons why firms profit maximimise?
- Need profits to survive
- Higher profits mean more investment so gaining market share
- To increase rewards for shareholders
What is the formular for sale maximisation?
Margional revenue = 0
4 reasons why do firms do sale maximisation?
- To increase market share
- improve the prestige of the company
- Personal intrests of the chariman
- deters new entrants as it makes the industry look less profitable than it actual is
what is the formular for sales volume maimisation?
AR=AC
what does this graph show?
Sales volume maxmimisation. AR=AC
4 reasons why firms want to do volume sale maximisation?
- To increase marketshare
- Increase the prestige of the company
- Personal intrest of the chairman
- To deter new entrants by making the market look less profitable
Define profit satisfising?
Making just enough profit to keep stake holders in the firm happy, this then allos the company to achive other objectves.
3 reason why do firms do profit Satisficing?
- Allows other objectives to be persued
- redeuces the attractiveness to new entrants
- reduces the level of intrest of OFT.
If AR is lower than AC what is happening?
The firm is making a loss
What is the formular for loss minimisaton?
MC=MR
what does this graph show?
Loss minimisation
What is the Break Even point and what is its formula?
When a firm is neither making a profit or a loss
When total revenue = total costs
AR=ATC(P1 Q1)
what is the break even point on this diagram?
P1Q1
Were is the shortrun shutdown point on this diagram?
AR=AVC or P2 Q2
