Objective of firms pt2

Question 1

Shareholders

Answer 1

Someone that owns shares of a company’s stock, which represents ownership in the company

Question 2

Stakeholders

Answer 2

A broader group. They are parties with diverse interest in the company’s operations, reputation and outcomes

Question 3

Profit maximisation overview

Answer 3

Shareholders-Higher profits increases returns for shareholders
Consumers-High prices and low output lead to lower levels of consumer surplus
Wider community stakeholders-Profits provide higher tax revenue for government spending

Question 4

Revenue maximisation overview

Answer 4

Shareholders-Profits are lower than profit maximisation so less dividends
Consumers-Lower prices than profit maximisation so there is a gain in consumer surplus
Wider community stakeholder-Closer to productive and allocative efficiency so community and society benefits.

Question 5

Sales maximisation overview

Answer 5

Shareholders-Normal profit so lower dividends
Consumers-Prices are lower so customers benefit and there is a consumer surplus
Wider community stakeholder-Firm maximises output which may benefit employment at the firm

Question 6

Satisficers

Answer 6

They only examine a limited set of alternatives and choose the best options between them. They could be managers that are concerned with increasing revenue or market share instead of pure profit maximisation.

Question 7

Maximisers

Answer 7

They behave in a rational way and always try to make the best possible choice from all available alternatives.