Objectives Of Firms

Question 1

What are other objectives of firms other than profit maximisation

Answer 1

Sales revenue maximisation —> favoured to employees whose salary based on sales —> also maximise firms market share
Image and social responsibility —> affects sales —> increase brand loyalty
Improving service/provide a public service—> firms which are owned by the public sector
Growth/expansion —> allows firm to diversify to reduce risk of failure —> less likely to fail in times of recession as firms will have large cash reserves
Satisficing —> some managers allocate themselves luxury company cars, maximise leisure time and earn a enough profit to satisfy owners —> this increases business costs

Question 2

What is satisficing

Answer 2

When businesses aim for an acceptable level of profit

Question 3

Why do firms satisfice

Answer 3

Small firms —> happy at low level of profit —> below the VAT threshold —> avoids extra costs
Lack of information —> difficult for businesses to determine the profit maximising output —> require business to measure all costs at every level of output
Max market share —> low prices —> can build up a market then increase prices when brand loyalty is established

Question 4

Why is survival important to a firm

Answer 4

So the economy does not lose jobs —> out of business would lead to unemployment in the economy

Question 5

How are smaller firms at a disadvantage compared to larger firms

Answer 5

Have less quantity of FoP —> lack of assets, capital and land —> so costs are higher in the short run
Lack of output to achieve EoS —> may have specialist managers and trainers, large containers but small firms lack the output to take advantage of the increasing returns to scale that can be derived from increasing output
Limited recognition by customers —> takes a while to build up a customer base