Motives Of The Firm Flashcards
When will a firm be revenue maximising?
When MR=0
Why would a firm pursue revenue maximisation? (2)
- if there’s left over stock going out of date
- if the directors pay is linked to the firms revenue
When will a firm be sales maximising?
When AC=AR
Why would a firm sales maximise?
To increase share of market/push rivals away
When is allocative efficiency?
When P=MC
When is productive efficiency?
When MC=AC=min point of AC curve
Define (profit) satisficing?
Making sufficient profit to satisfy the demands of shareholders.
Define cost plus pricing?
The technique adopted by firms, of fixing a price for their products by adding a fixed percentage profit margin to the long run average cost of production.
When will a firm be profit maximising?
When MC=MR and MC is rising.
4 pricing strategies to gain market share/increase profitability?
Predatory pricing
Limit pricing
Discount pricing
Cost plus pricing
What is predatory pricing? (4)
Pricing below costs to drive other firms out the market.
Short run - losses are made
Long run - charge higher prices due to less competition therefore higher profits
Anti competitive and illegal
What is limit pricing? (4)
Pricing at a low enough level to prevent entry from new firms.
Prevents competition
Helps to exploit EofS
Not illegal in UK
What is discount pricing?
Buy one get one free etc
Problem with pricing strategies?
Can lead to price wars between firms
Name 8 non pricing strategies and explain the use of them?
USED TO SHIFT AR RIGHT
- advertising
- investment in brand image
- product development
- quality improvement
- innovation
- mergers to eliminate competition
- improving customer care
- warranties
