Objective of firms

Question 1

Marginal revenue

Answer 1

The change in total revenue from selling an extra unit

Question 2

Marginal cost

Answer 2

The change in total cost from producing an extra unit

Question 3

Marginal profit

Answer 3

The increase in profit when one more unit is sold

Question 4

The main business objectives

Answer 4

-Profit maximisation
-Revenue maximisation
-Sales maximisation
-Satisficing objective
-Business survival
-Environmental and social obligations
-Public interest objectives

Question 5

Profit Maximisation

Answer 5

-Occurs when MR=MC
-If MR>MC, then selling an extra unit will add to profit
-If MR<MC, then selling an extra unit will lower profit

Question 6

Revenue maximisation

Answer 6

-Revenues are maximised at an output level where MR is 0
-The PED when revenue is maximised is unity (1)
-Occurs halfway down the demand curve (AR curve)

Question 7

Sales growth maximisation

Answer 7

-Focuses on generating the highest possible level of sales within a given period as part of a wider objective of growing market share or building a brand
-As sales increase, a business may take advantage of EOS, leading to lower average costs and higher profits.
-Occurs when price per unit=average cost

Question 8

Environmental and social obligations

Answer 8

-Reducing carbon emissions
-Waste reduction and recycling
-Philanthropy

Question 9

Satisficing objectives

Answer 9

-It involves the owner of the businesses (shareholders) setting minimum acceptance levels of achievement of revenue and operating profits to managers (agents)